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Sunday - LaunchWeekend - Session 4 - Effectuation
The document discusses 10 factors that predict startup success: 1. Opportunity, not planning, best predicts success. Startups in industries with many opportunities like computers have more Inc500 companies. 2. Teams with multiple founders have lower failure rates than solo founders. 3. Seeking advice from professionals correlates with higher survival rates. 4. Industry experience and strong teams with joint experience increase survival chances. 5. Getting early customer traction, not research, predicts whether customers will buy. Founders who sell predict success. 6. Premature scaling leads most internet startups to fail; proper scaling grows companies faster. 7. Communities like Y Combinator correlate with top startup performance, perhaps due to
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Sunday - LaunchWeekend - Session 4 - Effectuation
- 1.
- 3. WHAT PREDICTS SUCCESS? The first sale ? ? ?
- 4. 1 Planning doesn’tpredict
- 5. “new ventures launchedwith formal written business plans do not outperform ones launched without them.” Source: Lange, Mollov, Pearlmutter, Singh and Bygrave (2007)
- 6. Business Plan? 21% Source: Bhide (2000) 79% Yes! No!
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- 8.
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- 12.
- 13. INDUSTRY CHOICE VS.INC 500 Source: Shane (2009) Industry Number of Inc 500 firms Firm starts Percent of Starts Pulp mills 6 33 18.182 Computer and office equipment 99 2359 4.197 Guided missiles, space vehicles, parts 2 60 3.333 Nonferrous rolling and drawing 14 581 2.410 Railroad car rental 3 136 2.206 Measuring and controlling devices 49 2482 1.974 Paper mills 3 125 2.400 Search and navigation devices 6 310 1.935 General industrial machinery 26 2173 1.197 Photographic equipment and supplies 7 646 1.084 Manifold business forms 3 281 1.068 Household appliances 4 390 1.026 Electrical industrial apparatus 11 1080 1.019 Legal services 10 129207 0.008 Eating and drinking places 34 494731 0.007 Carpentry and floor work contractors 4 66383 0.006 Real estate operators 5 90042 0.006 Hotels and motels 2 39177 0.005 Painting and paper contractors 2 43987 0.005 Retail bakeries 1 22165 0.005 Grocery stores 5 112473 0.004 Used merchandise stores 1 24442 0.004 Automotive repair shops 5 124725 0.004 Beauty shops 3 79081 0.004 Residential care 1 27710 0.004 Videotape rental 1 27793 0.004
- 14. Computer and OfficeEquipment (1/25) Eating and Drinking Places (1/14,550) Source: Shane (2009)
- 15. 582 succeed Computerand office equipment 1 succeeds Eating and drinking places Source: Shane (2009)
- 16. 0.77 Correlation betweennumber of startups in an industry and failure rate Source: Shane (2009)
- 17.
- 20. 13.1% 54.2.% 5-YEARFAILURE RATE? > Source: Bruderl, et al. (1992) +
- 21. 90% TEAM SIZESOUTH AFRICA 10% 1 founder 2 or more founders Source: FinScope (2010)
- 22. 3 Advice seekingpredicts
- 23. 45% 80% 3-YEARSURVIVAL RATE Advice from accountants 3+/yr No advice Source: Watson (2007)
- 24. SUCCESSIVE ENTREPRENEURSHIP ANDNO LEARNING Source: Pretorius & Le Roux (2011)
- 25. Source: Pretorius &Le Roux (2011)
- 26.
- 27. INC 100 ENTREPRENEURSWITH INDUSTRY EXPERIENCE 75% 25% Source: Fresser and Willard (1990)
- 28. No Industry Experience Industry 25.5 % Experience Source: Bruderl, et al. (1992) 54.5 % 5-YEAR SURVIVAL AND INDUSTRY EXPERIENCE
- 29. Strong Team (1)3 + members (2) 50% joint experience (3) 3 year industry experience (19%) (73%) Source: Eisenhardt & Schoovenhoven (1990)
- 30.
- 31. “I'd just gosell it. I don't believe in market research. Somebody once told me the only thing you need is a customer." Source: Sarasvathy (2007)
- 32.
- 33. FOUNDERS INVOLVEMENT INSELLING Heavily Involved Somewhat Involved 10% Source: Bhide (2000) 82% 8% Main Salesperson
- 34. 6 Avoid Pre-matureScaling
- 35.
- 36. DON’T SKIP THEASSUMPTION TESTING AMAR BHIDE No Facts Idea Build
- 37.
- 38.
- 39. of high growthinternet start ups fail due to premature scaling. Source: Start Up Genome Report(2011)
- 40. Startups that scaleproperly grow about times faster than startups that scale prematurely Source: Start Up Genome Report(2011)
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- 42.
- 43. Mayans Hutu Greeks Romans Egyptians Vikings Khoisan Persians TRIBES
- 44. YPO MBAs Gamers Sports centers The Sharks KIPP Music Scools Rhodes Rowing TRIBES
- 45. THE BREAKTHROUGH COMPANY 7000inc 500 companies assessed 9best performers chosen for a study 4belonged to YPO
- 46. THE OLD BOYSCLUB
- 47. “While some attributeYC 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
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- 50. VALUES DEFINITION Howimportance or precious something is to a person
- 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. 8:00: Heads toSpaceX’s office in his Model S. How does Elon Musk spend his time?
- 53. HOW DOES ELONMUSK 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. HOW DOES ELONMUSK SPEND HIS TIME? 12:30: Propulsion schedule meeting 12:30: Building operations meeting
- 55. HOW DOES ELONMUSK SPEND HIS TIME? 16:30 Visits the rocket factory
- 56. HOW DOES ELONMUSK SPEND HIS TIME? 19:00 Interviewed by Sarah Lacy from Pando Daily Attends premier of a film he has produced
- 57. HOW DOES ELONMUSK SPEND HIS MONEY?
- 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. WHAT GIVES RICHARDBRANSON 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. WHAT DOES RICHARDBRANSON SPEND HIS MONEY ON?
- 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. Values predict your AMAR BHIDE future!
- 63. AMAR BHIDE Businessand investing Family and friends Baseball Becoming a great investor
- 64. Eating Movies ?Partying AMAR BHIDE Outcome 1 Outcome 2 Outcome 3
- 65. Business Career ?Investing AMAR BHIDE Outcome 1 Outcome 2 Outcome 3
- 66.
- 67. GROWTH COMMITMENT? Source:Barringer et al. (2005) 54% 80% FAST GROWTH SLOW GROWTH
- 68. IF YOU SALESDOUBLED 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. “We will createproducts 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. “I will builda 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. 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. SESSION TO DOLIST (09:30 TO 14:00) Goals • Run at least 2 experiments (1 to 2 hrs per experiment) • At least 10 to 40 customer interactions (At least 5 customers per hour) Prepare to announce • Number of experiments run • Number of customer interactions * Pick up some lunch while you are interviewing customers
Editor's Notes
- #6 This is one thing were the idea of business plan as spread all over. Of the studies that have looked at business plan nearly all of them show that business plans don’t have an impact on performance, or worse they actually hinder performance. And there are very real reasons why spending a week or 2 writing a business plan is a bad idea.
- #7 Also, when you look at the best.
- #10 Neither did the founder of Intel corporation the largest manufacture of micro-processors build a
- #11 Baby in topless bar. Julius Malema in builders warehouse.
- #30 Take for an example a 6 year study they did on Silicon chip manufactures start ups in the US. They compared teams which started with more then tree members, at least 50% of the team had joint experience and had three years industry experience in the team. The difference was massive a full 73% in six years become successful companies were only 19% with weak times become successful.
- #36 What is pre-mature scaling. No it is not scaling the fish before it’s dead, or getting on the bathroom scale before it is ready for you.
- #37 It is when you start growing a business before you have found product-market fit.
- #38 One of the best examples of pre-mature scaling was webvan.
- #40 A recent study done last year by a group of researchers in silicon valley 3,200 internet start ups found that a full 74% of internet start ups failed because they tried to grow the business. Before they had found product market fit.
- #41 They also found that business that found product-market fit grow at about 20 times faster than startups that scale to early. The bottom line is you don’t want to start making moves on that girl until you know she is very interested and will be willing to stick around.
- #68 In 2005 three researchers did a study on 100 businesses, 50 fast growth business and 50 slow growth businesses, using the data gained from case studies they found that only a little over half of the slow growing business were committed to growth, were as over 80% of the fast growing business were committed to growth.
- #69 Is has been shown that your attitude to growth will impact how likely you are to set real growth goals. Often