Mapping The Startup Genome: The 7 Signs Of Failure

When you want to map something like the “startup genome”, you know you need more than just your four co-working founder friends – you need an army of people and organisations who work with startups to make it happen. Enter the seed accelerator, Blackbox. Co-founded by techVenture, StartupSchool, and FoundersFirst, Blackbox’s extended team has a track record of working with 100+ startups, including 15 exits such as Bebo, Tapulous and Lala. Now, having profiled more than 650 web startups, Blackbox has released its first Startup Genome Report. It is the first major step toward cracking the innovation code and in their words, “spreading the magic of Silicon Valley to the rest of the world”.

A research project in collaboration with faculty from Stanford and Berkeley, Startup Genome hopes to accelerate the pace of innovation around the world by turning entrepreneurship into a science.

With this attempt to map the genome of a web startup, they’ve divided the lifecycle of a startup into 4 discrete stages and identified 4 very different types of startups. They also found that startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.

The key individuals behind this report are Max Marmer, Ron Berman and Bjoern Lasse Herrmann, together with the rest of Blackbox. Max and Bjoern are also part of Sandbox – an amazing global network of people under 30 (something I’m also privileged to be a part of).

(By the way, the 4 stage stages of a startup have been termed the “Marmer Stages” under the Startup Genome.)

The following is a deeper breakdown of some of the data they gathered. Look to see if you find yourself fitting in anywhere!

The 7 Signs of Failure for Internet Startups

(1) Not Working Full Time

People who work half time are able to raise money, but about 24x less than founders who go full time.

(2) Solo Founder or 4+ Founders

- Solo founders raise less than 50% what 2-3 founders raise. One reason for this is that during fundraising solo founders are now forced to split their time and attention between the product, the business and raising money.

- Solo founders have 290% less user growth and are 16% more likely to scale prematurely than founding teams of 2-3.

- More than 42% of the startups that are moving more than 20% slower than the average time needed to reach the scale stage are solo founders.

(3) Don’t Have A Technical Cofounder

If you start a technology company and nobody on your team is technical you are unlikely to succeed. As a result companies with no technical cofounder are almost twice as likely to scale too early. They also have 3-5 times less user growth on average and need 7-8 months longer to reach the scaling stage.

(4) Wrong Founding Team Composition for the Wrong Type of Startup

Business heavy founding teams are more likely to succeed with a startup that requires enterprise sales, whereas technical heavy founding teams are more likely to succeed with a self-service consumer Internet startup. Balanced teams perform well with all types of startups except those that require a lot of enterprise sales.

The Startup Genome project broke down the four types of startups:

The Automizer (Type 1)
Common characteristics: self-service customer acquisition, consumer focused, product centric, fast execution, often automize a manual process.

The Social Transformer (Type 1N)
Common characteristics: self service customer acquisition, critical mass, runaway user growth, winner take all markets, complex ux, network effects, typically create new ways for people to interact.

The Integrator (Type 2)
Common characteristics: lead generation with inside sales reps, high certainty, product centric, early monetization, SME focused, smaller markets, often take innovations from consumer Internet and rebuild it for smaller enterprises.

The Challenger (Type 3): large but rigid markets, strong sales, enterprise market Common characteristics: enterprise sales, high customer dependency, complex & rigid markets, repeatable sales process.

(5) Don’t Pivot at All or Pivot Too Often

When real world feedback shows you that something isn’t working you need to adapt. However, changing your business too frequently will leave you running in circles. Founders who pivot 1-2 times have 100% more user growth and are 48% less likely to scale prematurely.

(6) Don’t Listen to Customers

Startups that track their metrics and listen to customers have 400% more user growth.

(7) Scale Without Validating Market

Startups that scaled after product market fit raise 3.2x more money, and have 1.5x more user growth.

Mapping the Science of Web Entrepreneurship

While some might question the ability to reduce entrepreneurship to mere statistics, the Startup Genome team believes in the need to understand the science of entrepreneurship:

“Many entrepreneurs that we have talked with during our research, especially younger ones, considered describing the repeating patterns of startups an impossible task or even a disgraceful reduction of the artistry of entrepreneurship to numbers and graphs. With this report we do not mean to imply that there is no art to entrepreneurship but rather that entrepreneurship is strongest at the intersection of science and art. By gaining a deeper understanding of the repeating patterns underlying success and failure entrepreneurs can dramatically increase their ability to innovate.”

For an in-depth report and a kick-ass infographic by Kissmetrics, check out StartupGenome.cc. For more on the methodology behind the report, check out this post by Ron.

Wanna see where you measure? You can also benchmark your startup at Startup Genome. This is a new survey that can help entrepreneurs understand the stage their startup is in and gives you personalized tips and advice for what to focus on based on data from the project. You can also look forward to an application for you to do more granular self-assessment.

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