What are the important factors when building a successful startup? That is the question in the 2nd week of the Stanford course: How to Build Successful Startups.
In the book: The Silicon Valley Edge, professor Gibbons provides a simple but helpful framework to answer the million-dollar question. The requirements of a successful startup boils down to the right product, team, source of capital & appropriate infrastructure. Following these insights, let’s extrapolate how to build the right team, product & business in that order.
Right team
To against the opinions of the crowd & work with uncertainty, a team of missionaries will always play longer & better than mercenaries. No startup can succeed without providing or at least course corrections. And, missionaries may eventually build the right product as they persist. A few attributes of such teams:
A few co-founders are highly aligned on the missions but own different core functions. For example, three co-founders may be the maximum at the beginning. They have to have complementary skills & own core functions independently, e.g. at least Technology, Product & Business. Bonus: more diver among co-founders is better. For example, immigrant co-founders are very common in Silicon Valley (SiV).
As the venture progresses, co-founders need to build the culture & grow the founding team right. The book: Straight Talk for Startups provides a few practical heuristics:
- Provide meaningful work instead of free lunches.
- Manage like a jazz band.
- Never hire the second best.
- A part-time game-changer is preferable to a full-time seat filler.
Right product
“If I had asked people what they wanted, they would have said faster horses.” — Henry Ford allegedly.
For a startup, a “faster-house” product is almost always a bad fit because that’s the game that established companies are good at. To survive, a startup has to innovate for “10x products”, in the other words: an order-of-magnitude improvement. Gibbons shares 3 characters of a right product:
- Rapid development: for example, a Software-defined product can be built & iterated rapidly. An SW product can be 10x better than another. Furthermore, “Software seems to take a lot longer for people to catch up with ”. Therefore, almost all SiV companies have & control the SW as a key part of their innovation stacks.
- Protected, e.g. it’s patented. Furthermore, you can also build an economic moat. For example, the network effect is one can get many excited in SiV.
- A significant market potential. In the fast raising digital economy, its near zero marginal cost enables rapid scaling & serving much longer tails.
Right business
“…you can build a business strategy around the things that are stable in time. … In our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection…” — Jeff Bezos
In SiV, it’s common to build a successful product to grow first and then figuring out how to monetize later. Because the business model can be very different from the product or service itself. For example, while Facebook provides social networking services, it is in the advertising business. In 2021 Q1, 98% of its revenue is still from ads.
Also every decade, new technologies mature, and new infrastructure has built to a critical mass. They set the context for a business model disruptive. And a successful business model innovation can take the total value for the socially to the next level. For example, Amazon started as an online bookstore to an enduring franchise with Prime membership. Also, McDonald had magical providing into a real estate business. The trick is to avoid monetizing too early or too narrowly. Remember, the “new economy” does not limit anyone to play the game by the old rules. So when the time is right, try To Build A Business You Deserve.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
