The Top 3 Reasons Startups Succeed, says Turnaround author and Angel Investor01 Apr 2013, Posted by Venture Capital in
David Silver has written books chronicling company turn-arounds and start-ups and has seen just about every problem a company encounters. Today, he is an angel investor and helps companies find compatible investors. He shares below the 3 top success indicators he uses to identify companies aligned for success, therefore investment.
1. Size of the problem. There must be a large number of receivers. How many people have the problem, are they aware they have the problem and can they afford the solution? If you select a market in which the receivers don’t know they have a problem, you will need megabucks to educate them. You want buyers who do not have to be told they have a problem, they know they have a problem and know they have to pay for a solution.
2. Elegance of the solution. Keep it simple. Keep it quiet. You want to be first to market with your idea and have a way to keep competition from interfering with you. And as Silver has written, many times the mere lack of complexity that keeps competition at bay – often appears like it’s too simplistic to be good.
For example when Fred Smith launched FedEx, his solution involved flying all packages to a central hub, sorting them there, and then put them on new planes in the early morning hours to be flowing to the intended destinations. He was laughed at by the senior managers of Emery Air and Purolator Express. They called his model “dumb” and didn’t emulate him because they thought the model would fail for being too dumb, simplistic, foolish and not worthy of copying.
Nobody copied Jean Nidetch when she started Weight Watchers on the premise that no one would pay her $2 to drive downtown to a conference room with other overweight people to complain how overweight they’d become. In less than 5 years her company had a 91% recognition factor. Her solution was delivered very elegantly, and she did not brag about it to the media. She kept a very low profile.
The same quiet beauty appears in the elegant Arthur Murray Dance Studios business. The users provide the outfits, music, travel costs, and they expend the energy to dance. The Arthur Murray franchisee rents an empty room, turns on the lights, brings the music device and collects the fees.
If you raise capital, do not advertise it. If you capture a million users, keep your mouth shut. Be silent and remain so until you are much larger. This increases the likelihood that a larger player in the industry will make an acquisition offer after you’ve demonstrated your success. You’ve successfully disrupted a market — which will attract capital to fuel your growth You never want to run out of money on the way up.
3. Experience of the Entrepreneurial Team. Your entrepreneurial team is critical. It’s highly unusual for a startup to succeed with just one person behind it. You need at least two, “the creative, exuberant, hard-charging, “force of nature” CEO and the measure thrice, cut once, detail-oriented, wizened COO who focuses the company on the core operations”.
Dear Mr. Silver:
I’m enjoying your book on Social Media, then I discover your VC website.
You are doing the heavy lifting, but it must be fun. I have a project I’ve been developing with your book that I will write up for you when I return to Boulder.