STARTUP SCIENCE
WHAT PREDICTS SUCCESS?

The first sale





?
?
?
1 Planning doesn‟t predict
“new ventures launched with formal written
business plans do not outperform ones
launched without them.”

Source: Lange, M...
Business Plan?

79%
21%

Source: Bhide (2000)

Yes!

No!
No!
No!
No!
No!

No!
Doh!?!
1 Opportunity Predicts
INDUSTRY CHOICE VS. INC 500
Industry
Pulp mills
Computer and office equipment
Guided missiles, space vehicles, parts
Nonfe...
Computer and Office Equipment
(1/25)

Source: Shane (2009)

Eating and Drinking Places
(1/14,550)
582 succeed

1 succeeds
Eating and
drinking places
Source: Shane (2009)

Computer and office
equipment
0.77

Correlation between number of
startups in an industry and failure rate

Source: Shane (2009)
2 Team Predicts
5-YEAR FAILURE RATE?

>

+

Source: Bruderl, et al. (1992)

54.2.%

13.1%
TEAM SIZE SOUTH AFRICA

10%

1 founder
2 or more founders

90%

Source: FinScope (2010)
3 Advice seeking predicts
3-YEAR SURVIVAL RATE

80%
Advice from
accountants 3+/yr

45%
No advice

Source: Watson (2007)
SUCCESSIVE ENTREPRENEURSHIP AND NO LEARNING

Source: Pretorius & Le Roux (2011)
Source: Pretorius & Le Roux (2011)
4 Industry Experience
INC 100 ENTREPRENEURS WITH INDUSTRY EXPERIENCE

25%

75%
Source: Fresser and Willard (1990)
5-YEAR SURVIVAL AND INDUSTRY EXPERIENCE

No Industry
Experience

Industry
Experience

Source: Bruderl, et al. (1992)

54.5...
(19%)

(73%)
Strong Team
(1) 3 + members
(2) 50% joint experience
(3) 3 year industry experience
Source: Eisenhardt & Scho...
5 Traction
“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."

S...
Source: Reynolds (1987)
FOUNDERS INVOLVEMENT IN SELLING
Heavily Involved
Somewhat Involved

10%

8%

82%
Main Salesperson

Source: Bhide (2000)
6 Avoid Pre-mature Scaling
Avoid
Pre-mature Scaling
DON‟T SKIP THE ASSUMPTION TESTING
AMAR BHIDE

Idea

No
Facts

Build
paulshawsmith
scientific business strategy
paulshawsmith
scientific business strategy
of high growth internet start ups
fail due to premature scaling.

Source: Start Up Genome Report(2011)
Startups that scale properly
grow about

times faster than startups that
scale prematurely
Source: Start Up Genome Report(...
8 Community
OBSERVATIONAL LEARNING
TRIBES
Romans
Mayans

Khoisan

Greeks

Vikings

Egyptians

Persians
Hutu
TRIBES
Sports centers
YPO

The Sharks

Music Scools

Gamers

KIPP
Rhodes Rowing
MBAs
THE BREAKTHROUGH COMPANY

7000
9

inc 500 companies assessed

best performers chosen for a study

4

belonged to YPO
THE OLD BOYS CLUB
“While some attribute YC dominate to Paul Graham’s
excellent selection of founders, or his ability to
coach founder to rai...
9 Values Predict
WHAT ARE VALUES?
VALUES DEFINITION

How importance or precious
something is to a person
DETERMINING VALUES
Time:
How does a person spend their time?
Show
Energy:
What activities gets the person excited?
Show
Mo...
HOW DOES OPRAH SPEND HER TIME?
6:00 – Wake up
6:30 – Arrived at office
7:30 – Make up and did 2 shows
11:30 – Snack and ph...
WHAT GIVE OPRAH ENERGY?
You know you are no the road to success if you would do your
job, and not be paid for it.
HOW DOES OPRAH SPEND HER MONEY?
ELON MUSK VALUES
Time:
How does a person spend their time?
Business
Energy:
What activities gets the person excited?
Busin...
How does Elon Musk spend his time?

8:00: Heads to SpaceX’s
office in his Model S.
HOW DOES ELON MUSK SPEND HIS TIME?
8:00: Morning phone calls.
Marketing VP, journalists, job
candidates or conference call...
HOW DOES ELON MUSK SPEND HIS TIME?

12:30: Propulsion
schedule meeting

12:30: Building operations
meeting
HOW DOES ELON MUSK SPEND HIS TIME?

16:30 Visits the rocket
factory
HOW DOES ELON MUSK SPEND HIS TIME?

19:00 Interviewed by Sarah
Lacy from Pando Daily

Attends premier of a film he
has pro...
HOW DOES ELON MUSK SPEND HIS MONEY?
RICHARD BRANSON VALUES
Time:
How does a person spend their time?
Business
Energy:
What activities gets the person excited?...
WHAT GIVES RICHARD BRANSON ENERGY?

“A business has to be involving, it has to be fun”

“My general attitude to life is to...
WHAT DOES RICHARD BRANSON SPEND HIS MONEY ON?
RICHARD BRANSON VALUES
Time:
How does a person spend their time?
Business
Energy:
What activities gets the person excited?...
Values predict your
future!

AMAR BHIDE
Business and investing
Family and friends

Baseball

Becoming a great investor

AMAR BHIDE
Eating

Movies

?

Outcome 1
Outcome 2

Partying

Outcome 3

AMAR BHIDE
Business
Career

?

Outcome 1
Outcome 2

Investing

Outcome 3

AMAR BHIDE
10 Vision Predicts
GROWTH COMMITMENT?

80%
54%

SLOW
GROWTH

Source: Barringer et al. (2005)

FAST
GROWTH
IF YOU SALES DOUBLED HOW WOULD IT IMPACT ON
YOUR:
•

Your workload

•

Extend to which preferred tasks would dominate

•

...
“We will create products that become
pervasive around the world… We will be
the first Japanese company to go into the
US m...
“I will build a motor car for the great
multitude… It will be so low in price
that no man making a good salary will
be una...
ACTION LIST
•
•
•
•
•
•
•
•

Validate you have a real opportunity
Find co-founders
Get an advisory board and listen
Don‟t ...
PITCHING YOUR BUSINESS RULES
•
•
•
•
•
•

5 minutes per startup (You will be cut off)
4pm we start pitching
Order will be ...
Sunday - Startup science
Sunday - Startup science
Sunday - Startup science
Sunday - Startup science
Sunday - Startup science
Sunday - Startup science
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Sunday - Startup science

  1. 1. STARTUP SCIENCE
  2. 2. WHAT PREDICTS SUCCESS? The first sale    ? ? ?
  3. 3. 1 Planning doesn‟t predict
  4. 4. “new ventures launched with formal written business plans do not outperform ones launched without them.” Source: Lange, Mollov, Pearlmutter, Singh and Bygrave (2007)
  5. 5. Business Plan? 79% 21% Source: Bhide (2000) Yes! No!
  6. 6. No!
  7. 7. No!
  8. 8. No! No! No!
  9. 9. Doh!?!
  10. 10. 1 Opportunity Predicts
  11. 11. INDUSTRY CHOICE VS. INC 500 Industry Pulp mills Computer and office equipment Guided missiles, space vehicles, parts Nonferrous rolling and drawing Railroad car rental Measuring and controlling devices Paper mills Search and navigation devices General industrial machinery Photographic equipment and supplies Manifold business forms Household appliances Electrical industrial apparatus Legal services Eating and drinking places Carpentry and floor work contractors Real estate operators Hotels and motels Painting and paper contractors Retail bakeries Grocery stores Used merchandise stores Automotive repair shops Beauty shops Residential care Videotape rental Source: Shane (2009) Number of Inc 500 firms Firm starts Percent of Starts 6 99 2 14 3 49 3 6 26 7 3 4 11 10 34 4 5 2 2 1 5 1 5 3 1 1 33 2359 60 581 136 2482 125 310 2173 646 281 390 1080 129207 494731 66383 90042 39177 43987 22165 112473 24442 124725 79081 27710 27793 18.182 4.197 3.333 2.410 2.206 1.974 2.400 1.935 1.197 1.084 1.068 1.026 1.019 0.008 0.007 0.006 0.006 0.005 0.005 0.005 0.004 0.004 0.004 0.004 0.004 0.004
  12. 12. Computer and Office Equipment (1/25) Source: Shane (2009) Eating and Drinking Places (1/14,550)
  13. 13. 582 succeed 1 succeeds Eating and drinking places Source: Shane (2009) Computer and office equipment
  14. 14. 0.77 Correlation between number of startups in an industry and failure rate Source: Shane (2009)
  15. 15. 2 Team Predicts
  16. 16. 5-YEAR FAILURE RATE? > + Source: Bruderl, et al. (1992) 54.2.% 13.1%
  17. 17. TEAM SIZE SOUTH AFRICA 10% 1 founder 2 or more founders 90% Source: FinScope (2010)
  18. 18. 3 Advice seeking predicts
  19. 19. 3-YEAR SURVIVAL RATE 80% Advice from accountants 3+/yr 45% No advice Source: Watson (2007)
  20. 20. SUCCESSIVE ENTREPRENEURSHIP AND NO LEARNING Source: Pretorius & Le Roux (2011)
  21. 21. Source: Pretorius & Le Roux (2011)
  22. 22. 4 Industry Experience
  23. 23. INC 100 ENTREPRENEURS WITH INDUSTRY EXPERIENCE 25% 75% Source: Fresser and Willard (1990)
  24. 24. 5-YEAR SURVIVAL AND INDUSTRY EXPERIENCE No Industry Experience Industry Experience Source: Bruderl, et al. (1992) 54.5 % 25.5 %
  25. 25. (19%) (73%) Strong Team (1) 3 + members (2) 50% joint experience (3) 3 year industry experience Source: Eisenhardt & Schoovenhoven (1990)
  26. 26. 5 Traction
  27. 27. “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)
  28. 28. Source: Reynolds (1987)
  29. 29. FOUNDERS INVOLVEMENT IN SELLING Heavily Involved Somewhat Involved 10% 8% 82% Main Salesperson Source: Bhide (2000)
  30. 30. 6 Avoid Pre-mature Scaling
  31. 31. Avoid Pre-mature Scaling
  32. 32. DON‟T SKIP THE ASSUMPTION TESTING AMAR BHIDE Idea No Facts Build
  33. 33. paulshawsmith scientific business strategy
  34. 34. paulshawsmith scientific business strategy
  35. 35. of high growth internet start ups fail due to premature scaling. Source: Start Up Genome Report(2011)
  36. 36. Startups that scale properly grow about times faster than startups that scale prematurely Source: Start Up Genome Report(2011)
  37. 37. 8 Community
  38. 38. OBSERVATIONAL LEARNING
  39. 39. TRIBES Romans Mayans Khoisan Greeks Vikings Egyptians Persians Hutu
  40. 40. TRIBES Sports centers YPO The Sharks Music Scools Gamers KIPP Rhodes Rowing MBAs
  41. 41. THE BREAKTHROUGH COMPANY 7000 9 inc 500 companies assessed best performers chosen for a study 4 belonged to YPO
  42. 42. THE OLD BOYS CLUB
  43. 43. “While some attribute YC dominate to Paul Graham’s excellent selection of founders, or his ability to coach founder to raise every-higher valuations, ort he branding for YC alumni, and their willingness to support, mentor and fund each other to success. In my humble opinion, this is what is really valuable about YC, and why it’s difficult for other to copy.” - Dave McClure, 500startups founder
  44. 44. 9 Values Predict
  45. 45. WHAT ARE VALUES?
  46. 46. VALUES DEFINITION How importance or precious something is to a person
  47. 47. DETERMINING VALUES Time: How does a person spend their time? Show Energy: What activities gets the person excited? Show Money: How do they spend their money? Show
  48. 48. HOW DOES OPRAH SPEND HER TIME? 6:00 – Wake up 6:30 – Arrived at office 7:30 – Make up and did 2 shows 11:30 – Snack and phone calls 12:35 – Did another show with Barbra Streisand 14:00 – Money issues and meeting plan next week‟s shows 19:50 – Tread mill 20:50 – Made dinner for Steadman (almost never happens) 22:00 – Reviewed books for book club 23:10 – Lights out
  49. 49. WHAT GIVE OPRAH ENERGY? You know you are no the road to success if you would do your job, and not be paid for it.
  50. 50. HOW DOES OPRAH SPEND HER MONEY?
  51. 51. ELON MUSK VALUES Time: How does a person spend their time? Business Energy: What activities gets the person excited? Business Money: How do they spend their money? Business
  52. 52. How does Elon Musk spend his time? 8:00: Heads to SpaceX’s office in his Model S.
  53. 53. HOW DOES ELON MUSK SPEND HIS TIME? 8:00: Morning phone calls. Marketing VP, journalists, job candidates or conference calls 10:45: Week status review on the Falcon 9
  54. 54. HOW DOES ELON MUSK SPEND HIS TIME? 12:30: Propulsion schedule meeting 12:30: Building operations meeting
  55. 55. HOW DOES ELON MUSK SPEND HIS TIME? 16:30 Visits the rocket factory
  56. 56. HOW DOES ELON MUSK SPEND HIS TIME? 19:00 Interviewed by Sarah Lacy from Pando Daily Attends premier of a film he has produced
  57. 57. HOW DOES ELON MUSK SPEND HIS MONEY?
  58. 58. RICHARD BRANSON VALUES Time: How does a person spend their time? Business Energy: What activities gets the person excited? Business Money: How do they spend their money? Business
  59. 59. WHAT GIVES RICHARD BRANSON ENERGY? “A business has to be involving, it has to be fun” “My general attitude to life is to enjoy every minute of every day. I never do anything without a feeling of, „Oh God, I‟ve got to do this today”
  60. 60. WHAT DOES RICHARD BRANSON SPEND HIS MONEY ON?
  61. 61. RICHARD BRANSON VALUES Time: How does a person spend their time? Business Energy: What activities gets the person excited? Business Money: How do they spend their money? Business
  62. 62. Values predict your future! AMAR BHIDE
  63. 63. Business and investing Family and friends Baseball Becoming a great investor AMAR BHIDE
  64. 64. Eating Movies ? Outcome 1 Outcome 2 Partying Outcome 3 AMAR BHIDE
  65. 65. Business Career ? Outcome 1 Outcome 2 Investing Outcome 3 AMAR BHIDE
  66. 66. 10 Vision Predicts
  67. 67. GROWTH COMMITMENT? 80% 54% SLOW GROWTH Source: Barringer et al. (2005) FAST GROWTH
  68. 68. IF YOU SALES DOUBLED HOW WOULD IT IMPACT ON YOUR: • Your workload • Extend to which preferred tasks would dominate • Your employee well being • Ability to control operations • Independence from customers, suppliers, etc. • Ability to survive a crisis • Ability to keep up quality products and services
  69. 69. “We will create products that become pervasive around the world… We will be the first Japanese company to go into the US market and distribute directly.. Fifty years from now, our brand will be as well know as any in the world.”
  70. 70. “I will build a motor car for the great multitude… It will be so low in price that no man making a good salary will be unable to own one. The horse will have disappeared from our highways, the automobile will be taken for granted.”
  71. 71. ACTION LIST • • • • • • • • Validate you have a real opportunity Find co-founders Get an advisory board and listen Don‟t scale until P/M fit Get traction Join a community Value your business Have a vision
  72. 72. PITCHING YOUR BUSINESS RULES • • • • • • 5 minutes per startup (You will be cut off) 4pm we start pitching Order will be drawn out of a hat Write your name on paper on allocated table Be honest and objective Have fun!

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