It matters not whether you are the investor or one of the founders, does your startup learn?
Why does this matter?
Firstly, the new Startup Genome report (from which the research below was gathered) makes the ability to learn the key ingredient of a startup that is likely to succeed.
That is, a startup will evolve through discrete stages of development and that learning is the fundamental unit of progress from one stage to another.
Therefore, the faster the startup learns – the faster it will evolve into a functioning and profitable business (ie success!), and, without learning, it will stay stuck in the discovery phase.
Secondly, the Startup Genome report says that companies that track metrics (ie. can learn from their market and customers) achieve a growth rate that is 7x greater than those that don’t track (and we assume, don’t learn from the market).
Third, and finally, the company must act on the feedback, otherwise it is at risk of growing quickly only to find that its products are not wanted.
The four stages of startup growth
The four stages that the report outlines are (and the typical duration of the stage);
Discovery: 7 months; validating whether the founders are solving a meaningful problem and whether anybody would hypothetically be interested in their solution
Validation: 11 months; converting the customer interest into an exchange of either money or attention (or both)
Efficiency: 17 months; refining the business model and the efficiency of customer acquisition.
Scale: 25 month; time to hit the accelerator and drive growth very quickly.
The time to pass through each stage will typically increase if the founder is a ‘sole’ founder and if the business is attempting to integrate markets or challenge exisiting ones. The time reduces for a google type automation or a business like Twitter which aims to change the way that people do things.
The startups do all need mentors, as the report found that those companies without mentors nearly always failed to raise funding.
The report also found that during the initial discovery phase, money raised is typically in the range of 10 to 50k, the second stage will raise 100k to 1.5m (depending on type of business) and then, at stage 3, where efficiency kicks in, no fund raising is required, until stage 4 when the business achieves a massive boost by going for growth and raising 1.5m to 7m (depending on the type of business).
However, at all stages, the key challenge is customer acquisition which rises from being the number one priorty in 35 to 40% of the first three stages to 70% in the final (scale stage).
Significantly, barely anyone considered product to be the greatest challenge at any of the four stages.
Therefore, Business Angels and Enterpreneurs, do you have a balanced team and can it learn? Solve this, in each of the different stages, and you will raise funds and build a successful business.
Lastly, at our next business angel and VC meetings shall we stop talking about products and talk about the customer and the team only?
Isn’t it time?
Can your startup team learn? We can tell you…