Three tips for startup success, according to investors:
- The founders of new businesses should have the right experience and aptitude to succeed in the specific industry they are in.
- Startups should ensure that early hires are a good fit for the culture that the founders envisioned, so that they can perpetuate that culture.
- New business ventures should offer a solution that is significantly different from anything else on the market.
Startups that win the backing of investors must not only provide a needed product or service, but their success can also depend on variable factors, from the commitment of the founders to their businesses to the people they hire and the culture they build.
CO— spoke with three investors about how they gauge the makings of a successful startup, and how companies such as Zappos and Dollar Shave Club have achieved their success.
Matt Kaness, an angel investor and the former CEO of ModCloth, cited the importance of founders in the success of a startup, as well as the importance of recognizing emerging trends or cultural shifts that drive demand for specific types of businesses.
Alejandro Cremades, a serial entrepreneur and startup investor, said the people that founders surround themselves with and the company culture they build are also important.
Michael Jones, co-founder and CEO of investment firm Science, also agreed that the vision of the founders is key to startup success, as well as the unique niche that the product or service occupies in the market.
Startups that tap into emerging cultural or generational shifts in consumer behavior signal growth potential
Kaness, who considers himself an active entrepreneur and an angel investor on the side, said the commitment of the founder to the mission of the startup can be one of the key determinants of a company’s success.
Angel investors are often providing funding very early in a company’s life cycle, he said, which makes the role of the founders especially critical. Investors often look for companies that have the right “product-market fit,” he said, but in the early stages of a company’s growth, perhaps the most important factor is the “founder-market fit.”
The founder’s vision and thesis for the company need to align with the founder’s own experience, industry expertise and personal network, Kaness said.
That’s in part why he invested in media platform Outside. The startup was founded by Robin Thurston, a fitness enthusiast with a history of experience that spans across technology and health. The company is expanding from publishing into a membership-focused organization offering online education and other benefits.
“What he is trying to build is an extension of his life’s journey,” said Kaness. “That’s a huge checkmark for founder-market fit.”
Another key characteristic Kaness looks for in companies he is investing in is whether the company is tapping into an emerging cultural or generational shift in consumer behavior. Outside also meets these criteria, he said, given consumers’ embrace of outdoor activities and work-life balance during the pandemic, and the accompanying migration to suburban and rural areas.
“Outside aligns really well with the impact COVID has had,” said Kaness.
Similarly, he cited another company he has invested in, Maker Wine, which offers premium wines from small producers in single-serving cans. The company taps into the growing consumer interest in e-commerce with its sleek online ordering platform and customizable subscription model, he said.
He also said there’s an unmet demand for portion control when it comes to wine that the cans, which each hold the equivalent of about a third of a bottle, provide. In addition, the company can leverage consumers’ interest in sustainability, due to the minimal impact of cans on the environment compared with glass wine bottles.
“There are a number of longer-term trends around consumer behavior, around culture, and around generational shifts in attitude that the startup is taking advantage of,” said Kaness.
[Read: After Disrupting Men’s Shaving, Dollar Shave Club Targets Another Niche]
Successful companies, Cremades said, are “super crazy about culture,” and are very careful in hiring their first 10 to15 employees because they are the people who will end up establishing the culture that was envisioned by the founders.
Creating a company culture with the right hires: Successful businesses ‘are super-crazy about culture’
Cremades, serial entrepreneur, and the author of The Art of Startup Fundraising, listed several characteristics that successful startups tend to have, including building a team that will drive the company culture.
“There has to be an incredible alignment and understanding as to where the company is going,” he said. “What is that future that you’re creating? Are people excited about that future? Do they have a sense of ownership in that culture and in that future that you’re also painting? Do they see themselves in that future?
“That’s the alignment that you want,” he said. “When you get the culture right, magic things happen.”
Successful companies, Cremades said, are “super crazy about culture,” and are very careful in hiring their first 10 to15 employees because they are the people who will end up establishing the culture that was envisioned by the founders.
He cited Zappos, founded by Tony Hsieh, as an example of a company that was built around its culture. The online clothing retailer, which is owned by Amazon, is known for its customer-centric corporate culture that seeks to celebrate individuality and prioritizes “people’s happiness over profits,” according to the company’s own stated mission.
As a result, Zappos has a team of workers who feel empowered to make decisions for the benefit of customers, and ultimately, the company.
“An effective culture can be a fantastic competitive advantage in the marketplace,” said Cremades.
[Read: These 5 Buzzy Startups Reveal How They Landed Millions in Funding]
Filling a unique niche: ‘It needs to be vastly different, or vastly cheaper, and completely different from anything else on the market’
Michael Jones, co-founder and CEO of investment firm Science, said one of the key characteristics that successful startups share is that they are unique in their ability to solve a specific challenge that potential customers face.
Ideally, the company would be providing a solution to a problem that no other companies have solved, he said. If they are offering an alternative solution, it needs to be significantly differentiated.
“It can’t be 10% better or 10% cheaper,” said Jones. “It needs to be vastly different, or vastly cheaper, and completely different from anything else on the market.”
He cited Dollar Shave Club, in which Science was an early investor, as an example of a company that took a new approach to solving a problem that founder Michael Dubin perceived in the market — the high cost of razors and the challenges involved in shopping for them at retail.
“He thought there was an opportunity for a new brand, and a new pricing structure,” said Jones.
Although the company struggled through challenges, Dubin persevered in part because of Dollar Shave Club’s unique direct-to-consumer business model, but also because of another trait that many startups share — the devotion of its founders to the company’s mission.
“Most of the companies that we see become successful have very passionate founders that are deeply connected to the problem,” said Jones. “They understand the problem, and they feel a greater purpose to solve that problem than just a commercial need. They are interested in making a change to the world in solving this problem that they feel very passionate about.”
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