Startup Genome

Posted: December 4, 2011 by John Clarkin in Ecosystem, People, Startup

Ge-nome (noun): all the inheritable traits of an organism.

 When the word genome is used to study humans, it includes all of the genetic information inside and outside the nucleus of our cells, and all of the hereditary material related to our organism.  In Greek, genome means, “I become, I am born” or “to come into being.”  The word came into use in the 1930s as scientists began to study genetics and the set of human chromosomes in an attempt to crack the code of human evolution.

Earlier this year, a group of Silicon Valley researchers took this scientific approach to entrepreneurship in what they called “The first step in cracking the innovation code.”  They examined the drivers of entrepreneurial performance, looking at 650 young Internet companies for patterns in successful startups.  They looked for answers to the question “What makes Silicon Valley startups successful”?

The Startup Genome Project tracked startups moving through a lifecycle of four initial stages:

  1. Discovery: In this stage, startups determine whether they are really solving a meaningful problem and whether anybody is interested in their solution.  Events include founding team formation, value proposition formulation, creating viable products, friends and family financing, and the first mentors & advisors come on board. Startups typically spend 5-7 months in this stage.
  2. Validation: Startups get validation that people are interested in their product through the exchange of money or attention. Events include refinement of product features, revenues realized, seed funding secured, first key hires made, and validation of the product market fit is established.  Most startups spend 3-5 months in validation.
  3. Efficiency: In this stage, startups refine their business model and improve efficiency in their customer acquisition process. During the 5-6 months most spend in this stage, startups refine their value proposition, overhaul their user experience, achieve viral growth, and discovery of repeatable sales processes and scalable customer acquisition channels.
  4. Scale: This stage is where startups step on the gas pedal, and very aggressively drive growth.  Events include “A Round” financing, massive customer acquisition, back-end scalability improvements, first executive hires, and process implementations over an average 7-9 month time frame.

Using this framework, the study revealed several key findings:

  • Startups need 2-3 times longer to validate their market than most founders expect, creating pressure to scale prematurely.
  • Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet.
  • Startups that haven’t raised money over-estimate their market size by 100 times, and often misinterpret their market as new.
  • Solo founders take 3.6 times longer to reach scale stage compared to a founding team of 2.
  • Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7 times more money and have 3.5 times more growth.

Most people understand that entrepreneurship is as much an art as it is a science, and this study only focused on the science part.  But gaining a deeper understanding of the repeating patterns underlying success and failure entrepreneurs can dramatically increase their ability to innovate.  For a link to this study, go to cincyentre.com.

Link is http://startupgenome.cc/

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