the science of technology startups

The Science of Technology Startups: How to radically improve your startups chance of success

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The first sale

What success?PREDICTS

1 Planning doesn’t predict

Source: Lange, Mollov, Pearlmutter, Singh and Bygrave (2007)

“new ventures launched with formal written business plans do not outperform ones

launched without them.”

Business Plan?

Source: Bhide (2000)

21%

79%

Yes!No!

No!

No!

No!No!

No!

Doh!?!

Did you change or adapt your original idea?

Source: Bhide (2000)

33% 66%

No!Yes!

Evan Williams

Source: Sarasarvathy (2011)

3 40 start upsto

$200 million to $6 billion

1IPO

Failing to plan is planning to fail Specific result

Begin with the end in mind

People

Knowledge

Resources

Market GapPlan

Causal Thinking

Market Research

Opportunities

Knowledge

People

Resources

Outcome

Outcome

Outcome

Outcome

Outcome

Outcome

Effectual Thinking(Imaging a possible new end using a given set of means)

What early stage activities predict success?

Planning doesn’t predict

The first sale

2 Industry predicts

Industry choice vs. Inc 500

Source: Shane (2009)

Industry Number of Inc 500 firms

Firm starts Percent of Starts

Pulp mills 6 33 18.182Computer and office equipment 99 2359 4.197Guided missiles, space vehicles, parts 2 60 3.333Nonferrous rolling and drawing 14 581 2.410Railroad car rental 3 136 2.206Measuring and controlling devices 49 2482 1.974Paper mills 3 125 2.400Search and navigation devices 6 310 1.935General industrial machinery 26 2173 1.197Photographic equipment and supplies 7 646 1.084Manifold business forms 3 281 1.068Household appliances 4 390 1.026Electrical industrial apparatus 11 1080 1.019Legal services 10 129207 0.008Eating and drinking places 34 494731 0.007Carpentry and floor work contractors 4 66383 0.006Real estate operators 5 90042 0.006Hotels and motels 2 39177 0.005Painting and paper contractors 2 43987 0.005Retail bakeries 1 22165 0.005Grocery stores 5 112473 0.004Used merchandise stores 1 24442 0.004Automotive repair shops 5 124725 0.004Beauty shops 3 79081 0.004Residential care 1 27710 0.004Videotape rental 1 27793 0.004

Industry choice vs. Inc 500

Computer and Office Equipment (1/25)

Eating and Drinking Places (1/14,550)

Source: Shane (2009)

Industry Inc 500

Computer and officeequipment

582 succeed

Eating and drinking places

1 succeeds

Source: Shane (2009)

Correlation between number of startups in an industry and failure rate

0.77

Source: Shane (2009)

What early stage activities predict success?

Planning doesn’t predict Industry predicts

The first sale

3 Team Predicts

5-year failure rate

Series1 13.1%

54.2.%

Source: Bruderl, et al. (1992)

+

>

Team size in South Africa

90%

10%

1 founder

2 or more founders

Source: FinScope (2010)

Inc 100 entrepreneurs with industry experience

75%

25%

Source: Fresser and Willard (1990)

Industry experience

Source: Bruderl, et al. (1992)

Series1 25.5 %Industry Experience

No Industry Experience 54.5 %

Strong Team

(1) 3 + members

(2) 50% joint experience

(3) 3 year industry experience

(19%)

(73%)

Source: Eisenhardt & Schoovenhoven (1990)

What early stage activities predict success?

Planning doesn’t predict Industry predicts Team predicts

The first sale

3 Seeking good advice predicts

5-year survival rate

Series1 45%

80%

No advice

Source: Watson (2007)

Advice from accountants 3+/yr

Successive entrepreneurship and no learning

Source: Pretorius & Le Roux (2011)

Successful entrepreneurship and no learning

Source: Pretorius & Le Roux (2011)

Successful entrepreneurship and no learning

Source: Pretorius & Le Roux (2011)

What early stage activities predict success?

Planning doesn’t predict Industry predicts Team predicts Seeking good advice predicts

The first sale

4 Funding predicts

VC backed companies – 25% list

Source: Grompers et al. (2009)

VC backing and Growth with controls

Source: Davila, Foster and Gupta (200)

What early stage activities predict success?

Planning doesn’t predict Industry predicts Team predicts Advice good seeking predicts Funding predicts incredibly well

The first sale

5 Traction is the ultimate predictor

Expert entrepreneur

“I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a

customer."

Source: Sarasvathy (2007)

First year sales as a predictor of growth

Source: Reynolds (1987)

Source: Bhide (2000)

82%

8% 10%Somewhat Involved

Founder’s involvement in Selling?

Main Salesperson

Heavily Involved

20times faster than startups that

scale prematurely

Startups that get traction before scaling grow 20 times faster than those that don’t

Source: Start Up Genome Report(2011)

What early stage activities predict success?

Planning doesn’t predict Industry predicts Team predicts Advice good seeking predicts Funding predicts incredibly well Traction is the ultimate predictor

The first sale

Thoughts to finish

Contribute to humanity

Contribute to humanity

Eink paper display

100Million Trees

Hagen Stehr

Problems?

paul@startupcherry.com@paulshawsmith

www.startupcherry.com