To leave the mothership of a highly successful global business conglomerate might be considered what the iconic BBC series Yes Minister used to call ‘a brave [i.e., ill-advised] decision’.

The reality is very different: leading a start-up is akin to doing a master’s degree in understanding how different the view is from the other side. Understanding just how different is critical, not just for those involved with start-ups, but for government, investors, and their customers.

The role of start-ups as an engine for economic success is increasingly understood by policymakers as critical in both mature and developing economies. So, all of us have a stake in understanding what makes the difference between start-up success and failure.

As many have noted, the most dangerous phrase in the Silicon Valley start-up universe is ‘fake it until you make it’. The worst example of what goes wrong when this mantra is pursued to the limit was Theranos (whose story has been told in the book/movie ‘Bad Blood, Secrets and Lies in a Silicon Valley Start-up’), in which the results were literally fatal for the victims. An example of a technology company whose tech failed the consumer, what really startled people was the credentials and reputation of the people behind the company.

Although start-ups whose products or algorithms fail rarely have such dramatic implications, the trajectory that catapults entrepreneurs from over-valued, hyped new businesses, to the ‘valley of despair/disillusion’, as the reality of the value created fails to meet the expectations of investors, is well established as a part of the start-up world experience.

In my experience, now with over a dozen start-ups, and having evaluated hundreds more, the reasons for start-up success are simpler than people realise. As with most things, conceiving is easy but executing is the tough part. Still, before we start a caveat; just as lessons from famous business books can’t be judged purely by the subsequent performance of the companies used as case studies in them (think ‘In Search of Excellence’, ‘Good to Great’ and ‘Built to Last’) I am using examples of start-ups and innovations who by their nature may later prove to less successful. 

In my experience, here are the nine things that make a difference:

1. Sell what you have

Perfection is the enemy of business success. There is no question that creating a product people want to use, pay for, and become loyal to is key, but what that is exactly often surprises those developing the product. Product development teams, who are invested in their ‘baby’ see all the limitations and flaws that could be improved and worry that the product isn’t good enough.

It is easy for them to fall into the never-ending vortex of enhancing the existing product, building product line extensions, when making the first offer robust, functional, and cost-effective would be more valuable. Even if the concept of the ‘MVP’ (minimal viable products) has become the key phrase in the lexicon of start-up books, in my experience conversations with product teams tend to reflect a lack of confidence in the offering and a belief that further development is essential. 

In a counterintuitive manner, conversations directly with customers can succeed in convincing them that the product is never good enough. In this case strong internal management (by the COO, CPO, CSO, or other leaders) needs to be willing to set deadlines and release dates.

Cainthus, where I was CEO, was a great example of this. COO Steve Kickert set a date for the first product launch (he later admitted he wasn’t sure could be reached) and which became the internal mantra. As often happens workflow aligned around the release date, and as it approached it became clear that it was possible, and eventually inevitable. Deadlines are important to create urgency, a constraint. The next is to have the people, the management, to buy in and to get it done. As Robert Emerson noted, ‘Once you make a decision the universe conspires to make it happen’.

Selling what you have may not be the sexiest goal, or even motivational to the product team, but the goal of a start-up cannot be to win a Nobel prize. There are critical moments in the development of a start-up when the management needs to recognize that ‘selling what you can make’ is the key to reducing the burn, reaching profitability, and making the company bankable to investors – especially in today’s jittery investment environment.

I have experienced multiple examples of this, particularly in agtech start-ups. In a recent example a company who is a key investor in agtech start-up Labby Inc but also a potential customer and user of the technology, asked the start-up how accurate their technology is at identifying a particular on-farm problem. The answer was an apologetic “70 per cent today, but 90 per cent tomorrow”. The investor/potential customer responded: “Well, then sell us the 70 per cent today, and the 90 per cent when you get to Generation 2, because what you have today is much better than what we can get from anyone else’s technology.”

2. Focus, focus, focus

The ability to achieve focus is crucial to the efficient use of resources, to getting business traction, to attracting investors, grants, business loans, and more. While having a shotgun approach in the early days is normal for start-ups, throwing as much against the wall as can be conceived, hoping something will stick, inevitably results in a lot of half-baked concepts. Plenty of teams get stuck on this hamster wheel, pursuing growth by trying a little bit of everything, but never a lot of one thing. In fact, it is harder to focus than it is to try everything. They end up just scratching the surface rather than digging a layer deeper to find what really works. As Thiel laid out in his book (the “Power Law”), single-minded innovators succeed. Similarly, in his books on the ‘Green Platform’ concept, Declan Coyle emphasises that powerful change is achieved when teams are aligned in delivering a single goal. 

Examples abound from the hundreds of pitch decks I’ve received since founding AgriTech Capital, and being inside the tent with more than a dozen start-ups that we’ve invested in. One example is Dublin’s leading craft bakery, the 150-year-old Bretzel Bakery. Embracing the 2-1-4-3 process (a strategic planning tool I have made available in book form) they have focused on their core business, keeping their artisanal quality while transforming their business model, and a concomitant 6-fold increase in the top line

Focus helps with everything: Presenting to customers, finding investors, attracting star talent. Sometimes it means starting new directions, attempting unconventional communication strategies; other times it is accepting that it’s time to stop doing certain things, not just to add and add. Knowing when to stop the spray and pray and to move to a focused strategy is an art as much as a skill, but in my experience, most start-ups get there too late, not too soon. 

3. Avoid seeking silver bullets

There is no more common, and conversely complicated, question in innovation than ‘what does the customer really want’. Start-ups often assume that the challenge for them is that they don’t have access to the customer insights/survey data sets multinationals can generate, however, the inability of larger corporations to innovate despite their resources would argue that isn’t the (only) issue. As Henry Ford famously said about the invention of the car ‘if I’d asked my customers what they wanted they would have told me faster horses.’ Brian Balfour, chief executive of Reforge, which helps companies scale, notes that teams often seek to focus on the ‘one hack, one secret, one trick, one tactic that will solve their growth problems’. The reality is that it is rarely that simple, and customers make decisions based on multiple, often overlapping reasons.  

This narrative is supported by the TED talk culture. Many start-up founders quickly find themselves on the circuit describing simple but elegant solutions to existential threats to the world and humankind. In my experience this thinking often leads to the wrong behaviors, ill-conceived products. Ironically it can also be supported by companies with too many resources or lack of deadlines.

Underfunded start-ups, with limited resources succeed whereas those who are well backed fail. The constraint of cash and/or time creates the hunger described in the ‘Beautiful Constraint’ which attracts the right people to the team, encourages others to exit, improves communication, encourages the commercial team to push customers harder to commit, sometimes before the product is even made.

The key in innovation should be to generate highly ‘sticky’ offerings, so that customers arrive at the point where they simply can’t imagine living without the service. Usually this means providing multiple offerings, not just the original product but also extra free services or access, which together delight the customer, even if none alone is a silver bullet, and the multiple offerings are developed over a longer period, after the initial product has been launched.      

4. Seek sticky sales 

Startups get excited about bringing customers in the front door, and it is important, but making sure they don’t leave by the back is also critical! First movers, lead users, early adopters, all seek bigger profits through innovation. Average customers view early adopters as being risk takers, pioneers and as one said to me ‘we all know what happened to lots of the pioneers in the American Wild West!’ Pioneers are willing to try what others won’t and their experiences influence market development, positively or negatively. While retaining customers is tough, it is very hard to grow when losing customers as quickly as gaining new ones. The critical issue for start-ups is to identify why customers are switching, cancelling their subscriptions, or no longer using the technology. Without retention, business failure is inevitable. 

The leadership dilemma is clear. ‘Founders’ and ‘Scalers’ tend to be excellent promoters, both of themselves and their ideas. At some point successful start-ups need to be brutally honest and the leaders embrace conflict to avoid group think and create business longevity. Balancing this with selling the dream to investors and other stakeholders is a tightrope act: one that survivors perfect. 

5. Try ‘stuff’ or ‘fishing expeditions’

While focus and stickiness of the core offering is critical, companies need still to find ways to innovate. This may be to bolster the core offering, prepare for future market demands or even to support further spin-offs. Once a start-up has a significant customer base it will need to create a continuous innovation process, which means experimenting all the time. Each experiment can produce deeper and deeper understandings of the motivations and drivers of customer behaviour. With this it is possible to segment users, choose different distribution channels and adapt the product and pricing. How to balance experimentation with focus is of course the key. Some describe the teams sent out to experiment as the ‘skunk works’, or special teams, labs, hackers, whose role is to move outside of the classical corporate focus to identify pathways to develop technologies without distracting the core business focus, which must be to deliver profits and business success as quickly as possible. At one organisation I work with we talk about ‘the fishing expedition’ meaning that we aren’t sure what we are going to find, but we know which pools we are putting the line into, and where we expect to find the right fish. As a Canadian wildcatter famously said to Tom Peters ‘to find oil you have to drill wells. Another AgriTech client informally termed a project we have led searching for new products the ‘Blue Ocean project’, mirroring the Blue Ocean Strategy group’s approach of seeking markets and opportunities where others aren’t present. Setting up ‘Trying Stuff’ teams makes a lot of sense when you don’t want your core group to lose focus, and indeed the people who should be recruited internally for these types of efforts are different from the ‘Get things done/Commercial products’ teams.       

6. Dig into the data.

I have been amazed throughout my career at the ‘golden nuggets’ companies have in their cabinets and chose to ignore. This corporate knowledge, this data that they have internally can better inform their sales efforts, inform the strategies of their customers, and even affect what the broader business community should do. The best example is the Alltech Feed Survey, now in its 10^th year. It came about when I was attending a meeting at the United Nations FAO and a senior director asked me if I could compile statistics on the global animal feed industry. At first, I was non-plussed and wondered what the purpose of such an exercise could be, how accurate any information I could generate could be, and what the value would be to the organisation I worked with. 

In the end I agreed to try, and while the first year’s data was not as robust as I had hoped, the results were surprisingly interesting, so I repeated it the following year. By year three it was clear that the cumulative benefit of multiple surveys was creating an accurate representation of what was effectively a speeding train. The survey provided the best, indeed only solid, estimates of the scale of a global business that wasn’t stationary, and whose production was changing every day, in every country, and every feed mill. The result 10 years later is a respected database, used by the United Nations as the most reliable source on information on a global business worth $500 billion. The report is quoted by government agencies, investors and even competitors. And it has been Alltech’s top lead generator.  

Others have pursued similar concepts. Zisk is an app which estimates the profitability of dairy farms for the next 12 months based on the input of cow numbers, milk contracts, feed and some other data into an app. I worked with them to identify the data they had collated from users and generated the annual Zisk Dairy Profitability Report which has generated more media coverage than any other dairy economics report, with coverage by all of the top US dairy industry magazines. Artemis’ annual report on ‘State of Indoor Farming’ has achieved the same. While I wasn’t involved with the decision of founder Allison Kopf to generate the report as soon as I met her (as part of the Pearse Lyons Accelerator/Cultivator) hosted and managed by Dogpatch Labs in Dublin, I knew that her instinct was correct, and that a report like that could generate more column inches, and headlines, than any other efforts the startup could imagine.

What golden nuggets do you have within your company’s data? A commitment to invest in data and analytics may not feel as exciting or rewarding as investing in other areas, and from a commercial perspective it doesn’t generate the features that sales and marketing are looking for, but longer term it can result in the more robust and scalable value of providing better understanding of your marketplace, while being a thought leader in your field.

7. Data is the cream, not the cake

Frequently at investment conferences when a start-up is pitching, they announce that they don’t expect to make money on their hardware, or even on their SaaS model, but the data ‘we create will be incredibly valuable’. I have struggled with this, accepting that there are several storied examples of organisations who have famously lost money only to recoup it in an exit where the acquirer is willing to pay more for what they view as valuable data. While data is the new oil and can give deeper insights into different business sectors or consumer behaviour, it is also important to remember that just like oil rich countries having more of it (in this case data) doesn’t guarantee becoming rich.

The challenge I see is that in the real-world users can only have so many apps, so many data platforms, and if you aren’t one of the apps on their smart device then the data you are generating is a lot less valuable than you expect.

Another complication is ‘who owns the data?’. Legal impediments such as the GDPR legislation in the European Union are at the forefront of this debate. Ag.Supply who I have worked with in Germany, are an example of this. Ag.Supply now work with about 20 per cent of all German farmers, and are starting to branch into other countries. They offer nearly 4 million items that farmer could need to buy, online, and through these orders they seek to understand what customers are buying and why, in order to create a more efficient and more economic supply chain for seeds, crop inputs and farm machinery. Their challenge is to make their service so important to the user that they will naturally ‘opt-in’ and be willing to share their data, as a way to gain even better service.

Understandably customers can be resistant to the collection of their data for repacking and resale back to the same user, and this is especially evident when they are asked to allow their data to be used through the acceptance of cookies. In my view successful startups need to have a plan to make money on their core product or service and understand that insights generated by the data may produce additional data streams in the future but are not essential as a pathway to profitability. Today’s offerings are ‘the cake’ and data insights ‘the cream’.

8. Double down on success

If something is working, then keep going. This may be a product application success, or a specific industry application, or a geographical region. I have seen that once success is identified in one field focus on identifying as many similar customers or applications in that niche before moving on. Distant fields aren’t necessarily greener so keep going until you find a natural limit in the market, or the customer acquisition cost goes up. Distynct, an Internet of Things (IoT) platform for farms, has discovered that providing farms with easy access to the internet and replacing traditional alarm systems with an IoT platform can be done in a very affordable manner. Later, Distynct plans to include data from other sources, such as sensors and robots to make the system more valuable. 

Start-ups can face the challenge that the identification of a new application might not fit with their preconceptions of the market, or indeed the pitch they’ve made to investors. Once a company becomes expert at ‘drilling and prospecting’ for new markets, instantly pivoting once a new market is discovered, counterintuitively this must be followed immediately by a hyper focused strategy to identify more clients within the new market.

AgriWebb is an example of an extraordinary successful platform allowing ranches to manage their crops and livestock more easily, Their Board fully expected the technology to be successful in the US and Europe but supported AgriWebb’s decision to double down on the home market, to build deep success in Australia before going global. Owning the home market, a strong commercial base, gives them a better foundation for extending operations into the global marketplace.

9. Change, Adapt  

Start-ups face similar challenges to corporations as they grow: what made for initial success can kill the company longer term, either from natural growth or changes in the marketplace. This often involves changes in leadership, especially of founders, and the arrival of more established professionals as the company grows, which can be quite a painful transition for those that were part of the early group. Is essential for the transition to a fully formed corporation. Clearly there are many ways to incentivise this transition, through shares or share options (ESOP) with an eventual exit being the most important, but the first step is to anticipate this stage of evolution.

Another example was a North-Carolina based crop production innovator. They recognised that one of their innovations had potential as a natural herbicide, a potential alternative to Roundup and other chemical weed control agents, whose use consumers are concerned with. It was clear that it was an innovation that the market wants, but the process of developing it would be too big a distraction from the core business. Harpe Bio became a new entity, leaving both teams free to focus. Named after the mythological sword that Perseus used to remove Medusa’s head, like the challenge of killing resistant weeds. Many potential investors say they recognise the need for Harpe as intuitive and obvious, but not until momentum suggests success is around the corner. New customers, new markets, products that consumers want today rather than those they bought yesterday. A pathway to profitability. These are the keys to pivot, play again the next game.

Conclusions

Success in start-ups isn’t simple or intuitive and if it was 95 per cent of start-ups wouldn’t fail. And this fact alone is why investors, governments and corporations are spending so much time and resources trying to understand how to succeed in start-up world. Start-ups do succeed and the nine lessons I’ve identified above can be instructive to start-ups, their investors and even corporations seeking innovation success. 

The recommendations don’t guarantee success, but they can increase the probability of success. The key is to treat them more like a tool kit than an instruction booklet: understanding what tools you have and deciding when to use which one is the ‘art’ part of the process. Why doesn’t everyone do it? Like a New Year’s resolution, we often know what we need to do, but get caught up in the dailyness of life.