The single biggest reason why start-ups succeed | Bill Gross | TED

Summary

The speaker explores the critical factors contributing to startup success, challenging the traditional belief that a great idea is paramount. Through analysis of 100 Idealab and non-Idealab companies, he reveals that timing is the most significant factor, accounting for 42% of success or failure. Team and execution rank second, while the uniqueness of the idea comes in third. The speaker emphasizes the importance of assessing market readiness and being honest about consumer response to increase the likelihood of startup success.

Takeaways

• 🌟 The speaker believes that startup organizations have the potential to make the world a better place by unlocking human potential through the right equity incentives and organization.
• 🔍 The speaker set out to systematically analyze factors that contribute most to startup success, aiming to avoid personal biases and misperceptions from years of experience.
• 🚀 The speaker has been involved in starting businesses since a young age and has started over 100 companies through Idealab, gaining insights from both successes and failures.
• 💡 Initially, the speaker thought that the idea was the most crucial factor for startup success, but later realized that the team, execution, and adaptability might be even more important.
• 🥊 The speaker quotes Mike Tyson to emphasize that a team's ability to adapt is crucial, as the customer's reality can 'punch' the initial business plan.
• 📈 The speaker considered five key factors for startup success: the idea, team and execution, business model, funding, and timing.
• 📊 After analyzing 100 Idealab and 100 non-Idealab companies, timing was found to be the most significant factor, accounting for 42% of the difference between success and failure.
• 👥 Team and execution came in second, while the uniqueness of the idea ranked third, surprising the speaker as he initially thought the idea would be most important.
• 💼 The business model and funding were found to be less critical, as a business model can be developed later and funding can be acquired once traction is gained.
• 📈 Specific examples like Airbnb and Uber highlight the importance of timing, as they succeeded during periods when their services were particularly needed.
• 🚨 The speaker's company Z.com failed due to poor timing, as broadband penetration was too low for an online entertainment company, contrasting with YouTube's success with perfect timing.

Q & A

What does the speaker believe about the startup organization's potential to change the world?

The speaker believes that the startup organization is one of the greatest forms to make the world a better place, as it can unlock human potential and achieve unbelievable things when people are organized with the right equity incentives.

What was the speaker's initial assumption about the importance of the idea in startup success?

The speaker initially believed that the idea was everything, which is why he named his company Idealab, emphasizing the importance of the 'aha!' moment when the idea is first conceived.

What did the speaker eventually conclude about the relative importance of the idea compared to other factors?

The speaker eventually concluded that while the idea is important, it is not the most critical factor for startup success. Instead, he found that the team, execution, and adaptability are even more important.

According to the speaker, what is the most significant factor contributing to startup success or failure?

The speaker found that timing is the most significant factor, accounting for 42 percent of the difference between success and failure in startups.

What role does the customer play in the success of a startup according to the speaker?

The customer is the true reality that a startup must adapt to. Their needs and reactions are crucial in shaping the success of a startup, as they 'punch the team in the face' with real-world feedback and demands.

What was the speaker's method for analyzing the factors contributing to startup success and failure?

The speaker analyzed five factors across 100 Idealab companies and 100 non-Idealab companies. He looked at the idea, team and execution, business model, funding, and timing to determine which factors mattered most.

What examples did the speaker provide to illustrate the importance of timing in startup success?

The speaker mentioned Airbnb and Uber as examples of companies that succeeded in part due to perfect timing. Airbnb launched during a recession when people needed extra money, and Uber's timing was perfect for attracting drivers looking for additional income.

Can you provide an example from the script where the speaker discusses a startup failure due to poor timing?

The speaker discussed Z.com, an online entertainment company that failed because it was too early for the concept. Broadband penetration was too low, and watching video content online was too difficult, leading to the company's closure.

What was the speaker's advice on assessing the timing for a startup?

The speaker advised to look at whether consumers are really ready for what the startup has to offer and to be honest about the results, without being in denial, as timing might be the most crucial factor for success.

What is the speaker's overall message about the role of startups in making the world a better place?

The speaker's overall message is that startups have the potential to change the world and make it a better place. He hopes that the insights he shared can help increase the success ratio of startups, leading to the creation of something great that wouldn't have happened otherwise.

Outlines

00:00

🚀 Startup Success Factors

The speaker expresses excitement about discovering key factors that contribute to startup success. They believe startups can significantly improve the world by unleashing human potential. Despite this belief, they question why many startups fail and aim to identify the most critical factors systematically. The speaker's background includes founding Idealab, which has launched over 100 companies with varying degrees of success. They evaluate five factors: the idea, the team, the business model, funding, and timing. Through analysis of 100 Idealab and 100 non-Idealab companies, they find that timing is the most significant factor, accounting for 42% of the difference between success and failure, followed by team and execution, and then the idea. Business model and funding are considered less critical.

05:01

🕒 The Importance of Timing in Startups

This paragraph delves into the importance of timing for startup success, using specific examples of both successful and failed companies. Successful companies like Airbnb and Uber are highlighted for their excellent timing, launching when market conditions were favorable. Airbnb's emergence during a recession made it appealing for people to earn extra money, while Uber's timing was perfect for attracting drivers looking for additional income. The speaker contrasts these with failures like Z.com, which despite having a solid business model and funding, failed due to poor timing as broadband penetration was too low for its online entertainment model. The success of YouTube, which launched just two years after Z.com's failure, is attributed to perfect timing with increased broadband penetration and the resolution of technical issues like codecs. The speaker concludes by emphasizing the significance of timing and the need for startups to honestly assess market readiness and their own denial about timing-related challenges.

Keywords

💡Startup Organization

A startup organization refers to a young company that is in the initial stages of its operations, often marked by innovation, rapid growth, and a focus on developing new products or services. In the video's context, the speaker believes that startups have the potential to significantly improve the world by organizing people with the right incentives and unleashing their capabilities to achieve remarkable feats.

💡Equity Incentives

Equity incentives are a form of compensation offered to employees, often in startups, in the form of company stock or stock options. They are designed to align the interests of the employees with those of the company and its shareholders. In the video, the speaker mentions equity incentives as a crucial element for motivating a team in a startup to work towards a common goal and achieve success.

💡Adaptability

Adaptability in a business context refers to the ability of a company or its team to adjust and respond effectively to changes in the market or environment. The speaker emphasizes the importance of a team's adaptability, particularly in how they respond to customer feedback, which is likened to 'getting punched in the face by the customer,' highlighting the need for resilience and flexibility in business execution.

💡Business Model

A business model describes the rationale of how a company creates, delivers, and captures value. It outlines the approach a company takes to generate revenue and profits. In the video, the speaker discusses the business model as a factor in startup success, noting that a clear path for generating customer revenues can be a significant contributor to a company's success.

💡Funding

Funding in the context of startups refers to the financial capital raised by a company to support its operations, growth, and development. It can come from various sources, including venture capital, angel investors, or loans. The speaker explores the role of funding in startup success, questioning whether substantial financial backing is the most critical factor.

💡Timing

Timing in a business context pertains to the moment when a product or service is introduced to the market and whether it aligns with consumer needs and market conditions. The speaker reveals that timing is the most significant factor in startup success, accounting for 42 percent of the difference between success and failure, and provides examples of companies like Airbnb and Uber that benefited from perfect timing.

💡Execution

Execution refers to the act of carrying out a plan or strategy effectively. In the video, execution is highlighted as a key component of startup success, with the speaker noting that a team's ability to execute is crucial, even more so than the initial idea itself. Good execution involves not only implementing plans but also adapting them based on real-world feedback and challenges.

💡Idea

In the context of the video, the 'idea' refers to the initial concept or innovation that forms the basis of a startup. While the speaker initially believed that the idea was paramount, they later concluded that other factors like team and execution are more critical. The speaker also notes that the uniqueness and differentiability of the idea ranked third in importance for startup success.

💡Customer Reality

Customer reality refers to the actual needs, preferences, and behaviors of customers, which can differ from a company's assumptions or expectations. The speaker mentions that the customer represents the true reality that a business must adapt to, emphasizing that customer feedback is a critical aspect of a startup's ability to succeed.

💡Idealab

Idealab is a company founded by the speaker 20 years ago with the purpose of creating and developing new businesses. Over the years, Idealab has launched over 100 companies, experiencing both successes and failures. The speaker uses the experiences from Idealab to analyze the factors contributing to startup success and failure, providing a wealth of real-world examples and insights.

💡Consumer Readiness

Consumer readiness refers to the state of consumers being prepared and willing to adopt a new product, service, or concept. The speaker suggests that assessing consumer readiness is vital for determining the right timing for a startup's launch. Being honest about consumer readiness can help avoid pushing a product onto an unprepared market, which can lead to failure.

Highlights

The speaker is passionate about the potential of startups to make the world a better place.

The belief that startups can unlock human potential in an unprecedented way.

The question of why many startups fail despite their potential.

The speaker's personal experience with startups since the age of 12.

The founding of Idealab and the launch of over 100 companies.

The importance of equity incentives and organizational structure in startups.

The shift in belief from the primacy of the idea to the importance of the team.

The analogy of business execution to Mike Tyson's quote about adapting to challenges.

The role of the customer as the ultimate reality in business.

The examination of five key factors contributing to startup success or failure.

The surprising finding that timing is the most critical factor for startup success.

The ranking of team and execution as the second most important factor.

The idea's ranking as third in importance, challenging traditional beliefs.

The low ranking of business model and funding, suggesting their lesser importance.

Case studies of successful companies like Airbnb and Uber highlighting the importance of timing.

Examples of failed companies and the role that timing played in their downfall.

The advice on assessing timing by evaluating consumer readiness honestly.

The closing message encouraging the use of these insights to increase startup success.

Transcripts

I'm really excited to share with you

some findings that really surprise me

about what makes companies succeed the most,

what factors actually matter the most for startup success.

I believe that the startup organization

is one of the greatest forms to make the world a better place.

If you take a group of people with the right equity incentives

and organize them in a startup,

you can unlock human potential in a way never before possible.

You get them to achieve unbelievable things.

But if the startup organization is so great,

why do so many fail?

That's what I wanted to find out.

I wanted to find out what actually matters most

for startup success.

And I wanted to try to be systematic about it,

avoid some of my instincts and maybe misperceptions I have

from so many companies I've seen over the years.

I wanted to know this

because I've been starting businesses since I was 12 years old

when I sold candy at the bus stop in junior high school,

to high school, when I made solar energy devices,

to college, when I made loudspeakers.

And when I graduated from college, I started software companies.

And 20 years ago, I started Idealab,

and in the last 20 years, we started more than 100 companies,

many successes, and many big failures.

We learned a lot from those failures.

So I tried to look across what factors

accounted the most for company success and failure.

So I looked at these five.

First, the idea.

I used to think that the idea was everything.

I named my company Idealab for how much I worship

the "aha!" moment when you first come up with the idea.

But then over time,

I came to think that maybe the team, the execution, adaptability,

that mattered even more than the idea.

I never thought I'd be quoting boxer Mike Tyson on the TED stage,

but he once said,

"Everybody has a plan, until they get punched in the face." (Laughter)

And I think that's so true about business as well.

So much about a team's execution

is its ability to adapt to getting punched in the face by the customer.

The customer is the true reality.

And that's why I came to think

that the team maybe was the most important thing.

Then I started looking at the business model.

Does the company have a very clear path generating customer revenues?

That started rising to the top in my thinking

about maybe what mattered most for success.

Then I looked at the funding.

Sometimes companies received intense amounts of funding.

Maybe that's the most important thing?

And then of course, the timing.

Is the idea way too early and the world's not ready for it?

Is it early, as in, you're in advance and you have to educate the world?

Is it just right?

Or is it too late, and there's already too many competitors?

So I tried to look very carefully at these five factors

across many companies.

And I looked across all 100 Idealab companies,

and 100 non-Idealab companies

to try and come up with something scientific about it.

So first, on these Idealab companies,

the top five companies --

Citysearch, CarsDirect, GoTo, NetZero, Tickets.com --

those all became billion-dollar successes.

And the five companies on the bottom --

Z.com, Insider Pages, MyLife, Desktop Factory, Peoplelink --

we all had high hopes for, but didn't succeed.

So I tried to rank across all of those attributes

how I felt those companies scored on each of those dimensions.

And then for non-Idealab companies, I looked at wild successes,

like Airbnb and Instagram and Uber and Youtube and LinkedIn.

And some failures:

Webvan, Kozmo, Pets.com

Flooz and Friendster.

The bottom companies had intense funding,

they even had business models in some cases,

but they didn't succeed.

I tried to look at what factors actually accounted the most

for success and failure across all of these companies,

and the results really surprised me.

The number one thing was timing.

Timing accounted for 42 percent

of the difference between success and failure.

Team and execution came in second,

and the idea,

the differentiability of the idea, the uniqueness of the idea,

that actually came in third.

Now, this isn't absolutely definitive,

it's not to say that the idea isn't important,

but it very much surprised me that the idea wasn't the most important thing.

Sometimes it mattered more when it was actually timed.

The last two, business model and funding, made sense to me actually.

I think business model makes sense to be that low

because you can start out without a business model

and add one later if your customers are demanding what you're creating.

And funding, I think as well,

if you're underfunded at first but you're gaining traction,

especially in today's age,

it's very, very easy to get intense funding.

So now let me give you some specific examples about each of these.

So take a wild success like Airbnb that everybody knows about.

Well, that company was famously passed on by many smart investors

because people thought,

"No one's going to rent out a space in their home to a stranger."

Of course, people proved that wrong.

But one of the reasons it succeeded,

aside from a good business model, a good idea, great execution,

is the timing.

That company came out right during the height of the recession

when people really needed extra money,

and that maybe helped people overcome

their objection to renting out their own home to a stranger.

Same thing with Uber.

Uber came out,

incredible company, incredible business model,

great execution, too.

But the timing was so perfect

for their need to get drivers into the system.

Drivers were looking for extra money; it was very, very important.

Some of our early successes, Citysearch, came out when people needed web pages.

GoTo.com, which we announced actually at TED in 1998,

was when companies were looking for cost-effective ways to get traffic.

We thought the idea was so great,

but actually, the timing was probably maybe more important.

And then some of our failures.

We started a company called Z.com, it was an online entertainment company.

We were so excited about it --

we raised enough money, we had a great business model,

we even signed incredibly great Hollywood talent to join the company.

But broadband penetration was too low in 1999-2000.

It was too hard to watch video content online,

you had to put codecs in your browser and do all this stuff,

and the company eventually went out of business in 2003.

Just two years later,

when the codec problem was solved by Adobe Flash

and when broadband penetration crossed 50 percent in America,

YouTube was perfectly timed.

Great idea, but unbelievable timing.

In fact, YouTube didn't even have a business model when it first started.

It wasn't even certain that that would work out.

But that was beautifully, beautifully timed.

So what I would say, in summary,

is execution definitely matters a lot.

The idea matters a lot.

But timing might matter even more.

And the best way to really assess timing

is to really look at whether consumers are really ready

for what you have to offer them.

And to be really, really honest about it,

not be in denial about any results that you see,

because if you have something you love, you want to push it forward,

but you have to be very, very honest about that factor on timing.

As I said earlier,

I think startups can change the world and make the world a better place.

I hope some of these insights

can maybe help you have a slightly higher success ratio,

and thus make something great come to the world

that wouldn't have happened otherwise.

Thank you very much, you've been a great audience.

(Applause)