Ideas on paper

Thoughts by José Luis Agell

Trying to understand startup dynamics

The startup world is chaos. Everybody knows it.

If we had a way to predict the success of  technology ventures and diagnose easy solutions to their problems, entrepreneurship would die. However, many people are trying to detect and understand some of the patterns that determine startup behaviors.

A first attempt was led by Younoodle  a litle bit more than 2 years ago. They surprised the startup community with the Younoodle score, a complex algorithm that, given certain values and data, was able to evaluate the success rate of a startup. The company planned to license this tool to the venture capitalism sector as a way to rate their investments and their potential. I personally don’t think they succeeded but they were able to generate some buzz at that time.

Today, the Blackbox team launched a new tool: the startup Genome Compass. I had the chance to test a first version of it when I applied to the EU Demo night. But today, I took some time to redo the benchmarking questionnaire for Innovalley. The results were very surprising.

Of course, I didn’t get a secret recipe to boost our business, but it’s useful to compare some important metrics against more than 3200 startups. You get a sense on where you stand regarding customer acquisition costs, distribution channels, customer growth…

Moreover, the startup Genome algorithm classifies startups in 4 types and 6 stages depending on the answers to the benchmarking questionnaire. Innovalley has been classified as a Challenger:

The Challenger / Type 3

These startups are focused on closing high paying customers in large but fragmented markets. They are highly dependent on a small number of deals being successful and usually operate in complex and rigid markets. To be successful they need to find a repeatable and scalable sales process.

If you’re interested in how you compare your startup to other early stage ventures, they summarized their results in a report  Startup Genome Report Extra: Premature Scaling. One of the biggest surprises is that success isn’t about size of funding or team. It turns out premature scaling is the leading cause of failure. These startups, called inconsistent, are those who try to scale before they have reached product/market fit and streamlined their customer acquisition process.

  • The team size of startups that scale prematurely is 3 times bigger than the consistent startups at the same stage
  • 74% of high growth Internet startups fail due to premature scaling
  • Startups that scale properly grow about 20 times faster than startups that scale prematurely
  • 93% of startups that scale prematurely never break the $100k revenue per month threshold

I am sure these insights will be valuable for all of us. Great job Blackbox!

One response to “Trying to understand startup dynamics

  1. Barbara October 5, 2011 at 12:02 pm

    Thank for fantastic article! I truly liked reading it. I will make certain to bookmark your weblog and will certainly come back at a later time. Continue great work. Have a great day.

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