Startups

What makes a startup successful?

A young, casually dressed female professional gazes out at us from behind a desk which supports an open silver laptop.

It’s a big question. If you’re an entrepreneur, it’s also a vital one. Failure to consider the factors behind startup success can devastate a young business. Time, money, and effort are all valuable and taking a few moments to learn about the reasons some startups thrive stops them going down the drain. If you want to join the one in twelve startups experiencing long-term sustainable growth, read on.

Contents:
    A group of young, casually dressed people work together at an outdoor cafe table, laptops open and smiling in the sun.

    Successful startups are built on a multitude of factors held in careful balance.


    Market knowledge

    No idea is an island. People often have great ideas for a startup or app based on their existing understanding of the market. Understably, some of the best ideas occur to people with no previous industry experience (not always, but often).

    That makes sense, as people from outside an industry tend not to be constrained by the traditional thinking floating around among insiders.

    They also don’t have a stake in preventing the industry from being disrupted; insiders have a place in the status quo, whether that’s a job or a successful business. Understandably, they may not be the biggest advocates for change.

    A beautiful island rich with foliage and surrounded by a white shingle sits in the midst of a sparkling azure sea. Toward the top of the frame, a speedboat is passing.

    Ideas are a start, but no business is an island. Market knowledge gives us a framework for sorting the good from the unfinished.


    But there are also downsides as well as advantages to being an outsider with a hot new idea. Here are a few of them:

    • An insider would know if an idea has already been done. An outsider might not.
    • insiders have market knowledge allowing them to see if the idea matches a niche, or gap. An outsider might work hard building a startup only to find that despite having created a terrific product, there’s just no market demand for it.
    • Industry insiders have a greater ability to perceive potential obstacles and deal with them before they become a problem. Insiders have a better idea of how people currently meet the needs addressed by new ideas, potentially including details such as the cost and benefits of each option.

    What’s the solution? Research.

    A ven diagram of two overlapping circles. The title reads 'The outsider on the inside: the startup solution".   One circle reads. "Insider: market knowledge advantage". The other, "Outsider: unrestricted by conventional thinking."  The overlapping area is labelled 'Research".

    An outsider to an industry can transform it with a high-calibre business idea, whether it’s a startup or a new piece of software. The key is to gain the advantages enjoyed by insiders.


    The more market knowledge you can obtain the stronger your chances of building a successful startup.

    Here’s a quick reminder of some of your options:

    • Industry reports. Businesses are as interested in what’s going on in their industry as you are, and they’ve got money to throw at research. Numerous research organizations are also constantly pumping out knowledge you can access. Statista, marketresearch.com, and even news outlets like Yahoo! Finance and the FT are worth your consideration as helpful starting points.
    • Social media. Seriously. What articles do key industry figures tweet? Reed them. What LinkedIn hashtags are specialists using? Follow them. You’ll have your finger on the pulse in no time. Contacts. You might know people in the industry with valuable knowledge you can tap into. Buy them a coffee and pick their brain. Even if you don’t, some people are surprisingly open to answering questions from strangers. Drop someone an email. You have nothing to lose and perhaps a lot to gain.
    • Q&A community sites. Some sites' entire MO is getting people answers. Reddit and Quora are key examples of places you can go for answers to specific questions. Try to explain what you want to know as clearly as possible to maximize the helpfulness of the answers you receive.
    • Blogs and guides. Companies like ours have an interest in helping startups succeed, which is partly why we publish articles like this, making their blogs and resources a potential goldmine of information. You can also try the information available from accelerator programs and seed funding organizations. Y-combinator is an example of an organization producing plenty of helpful content, though rarely specific to the industry the startup aims to enter.
    • Be the consumer. Become your rivals’ best customer. Shop around and try the solutions currently available.
    • Quiz your customer. We’ll go into more detail about this in the next section, but researching your users is too valuable to skip over.

    Validating your core offer

    Market validation is probably the best thing you can do early on before investing in turning your idea into a business and/or digital product. It’s a fancy term for something simple:

    Checking if the market wants your solution. Is there potential demand for something like this?

    A panel of three smartly dressed yet relaxed women face an audience, over whose shoulders we observe them. The room is chicly decordated, with attractive old-world brick walls, large, industrial-looking windows, and light white curtains only partially obscuring them.

    Real people are going to decide if your startup or product is a success or not. Getting their feedback early on will help you deliver what they want instead of just what you think they want. Focus groups are one powerful tool for this.


    We highly recommend reading a specialist guide on this subject to make sure you get this right. We recently created an up-to-date guide with everything you need to know about product-market fit, covering a range of topics including validating your idea.

    User feedback

    Once you’ve gone to market, collecting the thoughts of early adopters (especially negative ones) helps you have a better product ready for when the majority of users arrive.

    This isn’t the same as validating your product, though both involve feedback from the public.

    The difference between validation and user feedback
    ValidationUser feedback
    • Prior to launch
    • Tests demand for core offer
    • Done with potential users
    • After MVP launch
    • Aim is to get actionable feedback on overall product
    • Feedback from actual users

    Validating your product is how you find out if there’s a market for it. It’s about the fundamental viability of your offer. User feedback is about making finer adjustments rather than changing the core concept.

    The more user feedback you gather at an early stage the better your chances of:

    • Positive early review scores (particularly in the important app stores like the Apple App Store or Google Play
    • Accelerating user growth, as users with positive experiences are more likely to recommend your digital product
    • Retaining innovators and early adopters, and so reducing ‘user turnover’
    • Gaining favourable media attention, particularly if your offering is innovative

    In 1962, Everett Rogers first published his theory of diffusion of innovation (DOI) as the route by which new technological innovations spread. The book is now in its fifth edition and is considered a classic text.

    The main reason it’s so popular in business circles today is Rogers’ conceptualization of the ‘bell curve’ in adoption accompanied by continued market share growth.

    While Rogers’ original intent was to describe the spread of innovations per se, rather than individual products, the concept was swiftly embraced by entrepreneurs and remains a popular point of reference among startups today.

    A graph showing the basic model of the 'diffusion of innovation.' A green line shows that even while rates of adoption fluctuate over time, with a small group of innovators followed by increasingly larger groups until the late majority and then late adopters embrace the innovation, its spread throughout society continues to grow.

    The green line represents overall market share, which trends towards one-hundred percent, even as the adoption rate plateaus and then declines. The goal of startups should be to accelerate their way through each stage of adopters by pleasing each successive group.


    A fully developed sales funnel

    The 2019 Global Startup Ecosystem Report by Startup Genome found that startups experiencing consistent growth scaled seven to eight times faster in what they define as the ‘efficiency stage’.

    The efficiency stage is the third in a series of seven used in the report:

    • Discovery
    • Validation
    • Efficiency
    • Scale
    • Sustain
    • Maintain
    • Decline (which you will naturally want to avoid)

    This stage is all about ensuring that when the company begins to scale, it gains the maximum amount of traction possible (the most output from the least input).

    This involves four main elements:

    1. Optimizing the conversion funnel from first customer contact
    2. Refining the business model
    3. Establishing a definable company culture
    4. Creating detailed financial plans

    We’ve highlighted item one because it’s the foundation that the rest of the business relies on.

    Ensuring that as many potential customers as possible are converted guarantees an income that, even if amounting to less than your total liabilities and expenses such as debt servicing, office rental, equipment purchases etc., can still be used as a basis for further borrowing if necessary or sustaining and expanding operations.

    A professionally dressed woman works at her laptop.

    Preparing a well-developed conversion funnel prior to scaling puts you among the startups statistically more likely to enjoy sustainable growth.


    This makes it a priority, even if achieving net-profit in the near-term is not an achievable goal.

    Additionally, by getting the sales funnel right early every dollar that is invested in scaling is more likely to return a greater investment because the sales funnel has been optimized. Why? Because the effects of scaling such as hiring new staff (including sales professionals) will arrive after improvements to the sales pipeline have been made, leading to greater ROI.

    Avoiding premature scaling

    Successful startups enjoying serious growth don’t scale before they’re ready. Startup Science identified this as the primary factor dividing successful startups from unsuccessful ones.

    But what is premature scaling?

    Definition of premature scaling

    Premature scaling is the name we give to the behaviour of a startup that focuses on its ‘Inner Dimensions’ over and above its ‘Outer Dimensions.’

    So what are they?

    What are the Inner Dimensions of a startup?
    1. Customer relationships
    2. Product
    3. Team
    4. Finance
    5. Legal
    What are the Outer Dimensions of a startup?
    1. Users
    2. Customers
    3. Product usage
    4. Revenue

    Together, these items can be summarized as ‘traction’, as they both demonstrate and contribute towards the progress of the company.

    What now?

    Reading this post was a useful, if small, step towards a successful startup. If you did find it useful, let us know by forwarding it to others you think might benefit from it.

    What you do now depends on where you are in the startup lifecycle. However, if you’re interested in ensuring the fundamentals of your startup are in place, we suggest diving straight into our ultimate guide to market fit.

    2020-05-077 mins

    Alex portrait

    Alexander Smithers

    Hello! I'm the head of content at Develocraft. I'm also a startup guy (no joke)! I've worked with a lot of them and learned so much. I'm here to help you by sharing that knowledge. I'm always open to collaborations. Find me on LinkedIn.


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