What It Takes To Make A Successful Software StartUp Today

Our newest partner at InterWest Partners, Keval Desai - who is a former Google product executive -shared with me a very interesting report he received this week; it’s called the “Startup Genome Report”.

It was published based on data from 650+ web start-ups. The authors are Berkeley & Stanford professors including Steve Blank.

The goal of the report as the authors describe it is “…to lay the foundation for a new framework for assessing startups more effectively by measuring the thresholds and milestones of development that Internet startups move through.”

After analyzing the results of their survey, the data suggested that successful Internet startups tend to follow similar paths of development. The authors then factored those paths into stages.

In the study, the authors identify 3 primary types of Internet startups with various subclasses and each of these are segmented by how they execute customer development and acquisition. As the report states, “Each type has varying behavior regarding factors like time, skill and money.”

 The full report, if you want to read it in its entirety – and I encourage you to do so – is here:

Startup Genome Report

If you don’t have the time or the inclination, the 14 key findings in the report are as follows:

1.  Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.

2. Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.

3. Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.

4. Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A)

5. Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.

6. Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups.

7. Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.

8. Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.

9. Most successful founders are driven by impact rather than experience or money.

10. Founders overestimate the value of IP before product market fit by 255%.

11. Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.

12. Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.

13. Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.

14. B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because the Internet has changed the rules of business. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.