Startup Creation Guide, Part 4: Essentials for a Startup

Part 3

An article about what is most important for a startup. For starters, a bit of theory.

If you look at a fairly large selection of startups, pieces 30-40, so that you can highlight the general trends - two things are immediately evident. Firstly, there is a large spread on the success scale. Some are incredibly successful, some are average, and some fail completely. Secondly, you can see a very wide variety of caliber and quality of the three key elements - team, product and market. Teams range from outstanding to bad, the product from an engineering masterpiece to a barely functioning model, the state of the market from blooming to comatose.

You start to think, what influences success more - a team, a product or a market? Or, more simply, what is the recipe for success? Or, on the contrary, what is most dangerous - a bad team, a weak product or a dead market?

Let's start with the definitions.

The caliber of a team can be determined by whether it has a suitable leader, leaders, engineers, and other key people in relation to the task facing them. We look at the startup and ask ourselves, is this team able to work optimally and efficiently? I emphasize efficiency instead of experience, as the history of startups is simply full of cases where people who previously “never did” achieved success.

The quality of a product can be determined by the impression it makes on the client or user who used it. How easy is it to use? Does it have many functions? How fast is it? Are you expandable? Is it polished? How many (or few) errors lurk in it?

Market size- the number and growth rate of the number of customers or users.

Suppose your startup is profitable - the cost of attracting a client is less than the income from it. Many object to my classification: “Could a product be great if nobody needs it?” In other words, is the quality of a product not determined by its attractiveness to customers?

Not. Product quality and market size are two different things . Here is a classic example: the best of its kind program running on an unpopular OS. Ask any developer for BeOS, Amiga, OS / 2 or NEXT what the difference is between a great product and a big market.

So, if you ask entrepreneurs or investors what is more important - a product, a team or a market, many will answer: “team”. The obvious answer, in particular, is that at the beginning of the activity much more is known about the team than about a product that has not yet been made, or about a market that has not yet been explored.

Plus, we are nurtured by slogans like "people are our most important resource" (at least in the States) - so the answer seems to be correct. And who wants to take the position that people do not matter?

On the other hand, many engineers will answer "product." The whole business revolves around a product - startups make a product, customers pay for it and use it. Apple and Google are the best in their industry because their products are the best. Without a product, there is no company. Imagine a great team without a product, or a large market without a product. What, isn't it? Now leave me alone, I have to continue to work on the product.

Personally, I adhere to the third position - I would say that the market is the most important component of success or failure of a startup. Why? In a large market with many potential customers, the market simply pulls the product from a startup. The market needs filling, and the market will be filled with the first suitable product. The product does not have to be excellent, it just has to work. The market doesn’t care how good the team is, the main thing is that it produces the right product.

In short, customers are knocking at your door for a product. The main goal is to answer calls and letters from people who want to buy it. If you have a great market, it’s very easy to upgrade your team on the fly. This happened with contextual advertising, online auctions and TCP / IP routers.

On the contrary, on the fig market you can throw the best product in the world, being at the same time a dream team - and it will not mean anything, because you will fail. You’ll break your pick, digging for years to nonexistent users of your wonderful product, and your beautiful team will eventually be demoralized and disintegrate, and your startup will die. This is what happened with video conferencing, micropayments and software that makes the workflow easier.

In honor of Andy Racklef, the former Benchmark Capital employee who formulated this law, let me introduce you to Racklef ’s Law for the Success of Startups :

Startup Killer No. 1 - the lack of a market.

Andy
puts it this way: - a great team, faced with a shitty market, loses;
- horseradish team, faced with a great market, loses;
- a great team, faced with a great market, gives out something special.

You can screw it up in an excellent market, it happened sometimes, it’s not so rare - but assuming the team is competent and the product is acceptable, an excellent market usually leads to victory, while a bad market leads to defeat. The market means the most. No stellar team or fabulous product will offset the market’s worthlessness.

So what?

First question: since you have the most control over the team first and everyone wants to create an excellent team, what can this excellent team lead you to? It is hoped that a good, and ideally a great product. However, I can give you a bunch of examples of great teams that completely ruined the product. A great product is very, very difficult to make.

You can also hope that a great team will lead you to a great market - but here I can name a bunch of examples of great teams that fought well with bad markets - and lost. A nonexistent market doesn't give a damn about how smart you are.

In my experience, the most frequent case of meeting an excellent team with a bad product and / or a bad market is the second or third time for an entrepreneur who succeeds for the first time.People start to lift their nose and stumble . Now I have before my eyes an example of a very successful entrepreneur who has already spent about $ 80 million on his last startup, and he has nothing but a good press and a couple of test clients - because there is no market for his startup.

And vice versa, I can list a lot of weak teams whose startups were successful thanks to explosive markets.

Finally, quoting Tim Shepard: “ An excellent team is one that always wins the middle team in the same market with the same product .”

Second question: can great products create huge new markets? Of course. But this is at best. Fresh Example - VMWare. Their product turned out to be so transformative that it caused a movement towards virtualization, which spawned a huge market. But in this case, it does not matter how good your team is - as long as it is good enough to develop a product that the market needs, and is able to bring it to the market.

Note that I do not urge you to give a damn about the team, and I do not say that the VMWare team was weak - it was and remains very strong. I affirm - give birth to the same transforming product as VMWare, and you will have great success. Otherwise, you do not need to rely on the fact that the product will give rise to the market.

The third question: and what should I, as the founder, do with all this?

Rackleaf's consequence for startup success: the only thing that matters is a good market entry. This is when the market is large, and the product satisfies it.

It is always felt when the output fails. Customers do not benefit from the product, word of mouth does not work, the number of users does not grow, reviews in the press are continuous, the sales cycle is too long, and many transactions are not concluded.

And it is always felt when the exit was a success. Customers are buying up the product like cakes, or the use of the service grows as quickly as you manage to add servers. Money from customers accumulate in the account. You hire salespeople and support as fast as you can. Reporters pick up phones to talk about your breakthrough. You get the "Entrepreneur of the Year" diploma at Harvard. Investors are on your doorstep.

Many start-ups fail even before a product enters the market. But in fact because their product could not enter the market. In general, the life of any startup is divided into two parts: before the product enters the market, and after. Being in the first part, be obsessed with the issue of successful product launch on the market. Do everything to get the product into the market. Change staff, rewrite the product, move to another market, refuse customers when you don’t want, or agree with customers when you don’t want to, go to the investors for the fourth portion of the injections - whatever. By doing this, you can ignore almost everything else.

I do not propose to ignore everything else at all - only that which can be ignored. Watching a successful startup that hit the market, you can see how they screwed up in other places - sales channels, development strategies, advertising campaigns, relations with the press, intimate relationships between the founder and investor ... And the startup still took off.

On the contrary, there are an amazing number of well-run startups that have everything in the ointment - HR policies, an excellent sales model, thoughtful marketing, fully thought-out interviews at the reception, excellent food for employees, 30 ”monitors for programmers, an investor from the first hundred - and all this joyfully flies off a cliff, as it does not enter the market.

Which is funny if you ask the founders of a successful startup what the secret is - they will talk about different things that are irrelevant to this. People generally have little understanding of causes and effects. But in almost any case it will be a good hit in the market. Well, because what else could it be?

Of course, the article raises more questions than answers. How exactly do you need to adapt the product to the market, if it did not work out right away? How to evaluate the size and quality of markets, especially not yet formed? What exactly contributes to the product entering the market? What role does timeliness play? When to change strategy and run to a new market, or remake a product? When to change part, or the whole team? Why can’t you expect a great team to make a great product and find a suitable market for yourself? We will discuss all this in the following articles.

Part 5