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The recipe for a billion-dollar company?

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After the breathtaking IPOs of LinkedIn and the nearing IPOs of Facebook and Groupon (at double-digit billion-dollar valuations), the world is on fire.

Bubble or not, this is the beginning of something new – the next wave of internet startups are poised to make a big difference. But have you ever wondered what makes a company more successful than another? What’s the difference between a billion-dollar company and one that just doesn’t grow?

Well, the team at Silicon Valley-based seed accelerator Blackbox may be one step closer to finding the billion-dollar recipe.

Blackbox has been working with Berkeley and Stanford universities on the Startup Genome Project, which aims to crack the “innovation code” of Silicon Valley – and they’ve just released their first report (here’s a link to the full report), based on profiling over 650 startups.

The report outlines 14 key characteristics that make a startup successful. Here’s the précis:

  1. Founders that learn are more successful: 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.
  2. Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52 per cent less likely to scale prematurely than startups that pivot more than 2 times or not at all.
  3. Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.
  4. Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A.)
  5. Solo founders take 3.6x longer to reach scale stage compared to a founding team of two and they are 2.3x less likely to pivot.
  6. Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups. 
  7. Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.
  8. Balanced teams with one technical founder and one business founder raise 30 per cent more money, have 2.9x more user growth and are 19 per cent less likely to scale prematurely than technical or business-heavy founding teams.
  9. Most successful founders are driven by impact rather than experience or money.
  10. Founders overestimate the value of IP before product market fit by 255 per cent. 
  11. Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
  12. Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.
  13. Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.
  14. B2C vs. B2B is not a meaningful segmentation of internet startups anymore because the Internet has changed the rules of business. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.

What do you think of Blackbox’s ideas? Do you recognise yourself or your business? What does it take to build a billion-dollar (or, better yet, a billion-pound) company?

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