The science of technology startups
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The Science of Technology Startups: How to radically improve your startups chance of success
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A presentation given at 2013 Tech4Africa about the science of technology startups.
Transcript of The science of technology startups
The Science of Technology Startups: How to radically improve your startups chance of success
? ? ?
The first sale
What success?PREDICTS
1 Planning doesn’t predict
Source: Lange, Mollov, Pearlmutter, Singh and Bygrave (2007)
“new ventures launched with formal written business plans do not outperform ones
launched without them.”
Business Plan?
Source: Bhide (2000)
21%
79%
Yes!No!
No!
No!
No!No!
No!
Doh!?!
Did you change or adapt your original idea?
Source: Bhide (2000)
33% 66%
No!Yes!
Evan Williams
Source: Sarasarvathy (2011)
3 40 start upsto
$200 million to $6 billion
1IPO
Failing to plan is planning to fail Specific result
Begin with the end in mind
People
Knowledge
Resources
Market GapPlan
Causal Thinking
Market Research
Opportunities
Knowledge
People
Resources
Outcome
Outcome
Outcome
Outcome
Outcome
Outcome
Effectual Thinking(Imaging a possible new end using a given set of means)
What early stage activities predict success?
Planning doesn’t predict
The first sale
2 Industry predicts
Industry choice vs. Inc 500
Source: Shane (2009)
Industry Number of Inc 500 firms
Firm starts Percent of Starts
Pulp mills 6 33 18.182Computer and office equipment 99 2359 4.197Guided missiles, space vehicles, parts 2 60 3.333Nonferrous rolling and drawing 14 581 2.410Railroad car rental 3 136 2.206Measuring and controlling devices 49 2482 1.974Paper mills 3 125 2.400Search and navigation devices 6 310 1.935General industrial machinery 26 2173 1.197Photographic equipment and supplies 7 646 1.084Manifold business forms 3 281 1.068Household appliances 4 390 1.026Electrical industrial apparatus 11 1080 1.019Legal services 10 129207 0.008Eating and drinking places 34 494731 0.007Carpentry and floor work contractors 4 66383 0.006Real estate operators 5 90042 0.006Hotels and motels 2 39177 0.005Painting and paper contractors 2 43987 0.005Retail bakeries 1 22165 0.005Grocery stores 5 112473 0.004Used merchandise stores 1 24442 0.004Automotive repair shops 5 124725 0.004Beauty shops 3 79081 0.004Residential care 1 27710 0.004Videotape rental 1 27793 0.004
Industry choice vs. Inc 500
Computer and Office Equipment (1/25)
Eating and Drinking Places (1/14,550)
Source: Shane (2009)
Industry Inc 500
Computer and officeequipment
582 succeed
Eating and drinking places
1 succeeds
Source: Shane (2009)
Correlation between number of startups in an industry and failure rate
0.77
Source: Shane (2009)
What early stage activities predict success?
Planning doesn’t predict Industry predicts
The first sale
3 Team Predicts
5-year failure rate
Series1 13.1%
54.2.%
Source: Bruderl, et al. (1992)
+
>
Team size in South Africa
90%
10%
1 founder
2 or more founders
Source: FinScope (2010)
Inc 100 entrepreneurs with industry experience
75%
25%
Source: Fresser and Willard (1990)
Industry experience
Source: Bruderl, et al. (1992)
Series1 25.5 %Industry Experience
No Industry Experience 54.5 %
Strong Team
(1) 3 + members
(2) 50% joint experience
(3) 3 year industry experience
(19%)
(73%)
Source: Eisenhardt & Schoovenhoven (1990)
What early stage activities predict success?
Planning doesn’t predict Industry predicts Team predicts
The first sale
3 Seeking good advice predicts
5-year survival rate
Series1 45%
80%
No advice
Source: Watson (2007)
Advice from accountants 3+/yr
Successive entrepreneurship and no learning
Source: Pretorius & Le Roux (2011)
Successful entrepreneurship and no learning
Source: Pretorius & Le Roux (2011)
Successful entrepreneurship and no learning
Source: Pretorius & Le Roux (2011)
What early stage activities predict success?
Planning doesn’t predict Industry predicts Team predicts Seeking good advice predicts
The first sale
4 Funding predicts
VC backed companies – 25% list
Source: Grompers et al. (2009)
VC backing and Growth with controls
Source: Davila, Foster and Gupta (200)
What early stage activities predict success?
Planning doesn’t predict Industry predicts Team predicts Advice good seeking predicts Funding predicts incredibly well
The first sale
5 Traction is the ultimate predictor
Expert entrepreneur
“I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a
customer."
Source: Sarasvathy (2007)
First year sales as a predictor of growth
Source: Reynolds (1987)
Source: Bhide (2000)
82%
8% 10%Somewhat Involved
Founder’s involvement in Selling?
Main Salesperson
Heavily Involved
20times faster than startups that
scale prematurely
Startups that get traction before scaling grow 20 times faster than those that don’t
Source: Start Up Genome Report(2011)
What early stage activities predict success?
Planning doesn’t predict Industry predicts Team predicts Advice good seeking predicts Funding predicts incredibly well Traction is the ultimate predictor
The first sale
Thoughts to finish
Contribute to humanity
Contribute to humanity
Eink paper display
100Million Trees
Hagen Stehr
Problems?
