What Matters in a Startup

@RedMaven just asked me a question related to my latest post on the OtherNumber Blog.

@andrewwatson which would you say is more important in a busines: the team, product/service, business model, or the market?
I answered him this:
@RedMaven 1. team 2. model 3. market 4. product
 But it's a great question so I wanted to write a more in depth answer to it.

I've seen it written many times that investors don't invest in companies, they invest in teams.  A lot of VC / Angel types will talk openly about how they prefer to invest in entrepreneurs that are on their second or third startup - even if or especially if those startups failed.  ( see Fred Wilson here and here and Cindy Cheatham here or Mark Suster here) You could have a great product in a huge market but if you have the wrong team, you're going nowhere. 

You have to know your model inside and out.  You also have to know your competition's models and the history of those models.. Don't try to pull off a model that only works with high margins if you are going into a space with historically very low margins, for example.  There's been a lot of discussion lately of the "Freemium" model as of late.  The "Advertising Supported" model has, thankfully, largely been killed off.  

Also, make sure that the model fits the growth plan for your business.  If you're going to bootstrap, choose a model that will throw off revenue ASAP  This works best with service oriented companies.  However, if you are building a product company then you won't be seeing revenue right away and you may need early stage investment to get going.

Research your model, make sure it makes sense for the space your in and the way you want to run your business and go for it.

I could write a book about picking the right market.  Mark Suster has a great series of posts about startups and he wrote about being a deer hunter vs. an elephant or rabbit hunter.  The customers you decide to sell to will determine the length of your sales cycles and how you will have to support those customers once you sell them. 

Also, watch out for 800lb Gorillas in the market you're entering.  It's never a good feeling to realize that a Google or Oracle could divert a few billion in cash from a cash account to create a competitor for you overnight.  That being said... the presence of GrassHopper and Google Voice isn't stopping me from building OtherNumber.

I put this last.  Most people put this first.  I still see / hear people express the fear that someone will steal their ideas.  I saw someone almost ridiculing the ATDC for its reformation and it's inclusiveness because they couldn't imagine people would get together and talk about their startups.  In my humble opinion, that guy is an idiot.

Dont' get me wrong.  Ideas are great.  I love ideas.  But ideas aren't worth shit.  Execution is what really matters and that's why the founding team is at the top of my list.

Anyway, I hope this longer answer sheds more light on the thought process behind my abbreviated tweet-answer.  I'm hoping to have a lively discussion in the comments!

Reblog this post [with Zemanta]