The Three Critical Elements to Startup Success

November 27, 2013

Ask any entrepreneur in the world: creating a startup and growing it into a legitimately successful, sustainable, long-term venture is difficult.

At every stage, there is a myriad of obstacles that companies must overcome to survive and thrive. The complexity of these obstacles can be overwhelming, as often they are sudden, wildly unpredictable, and potentially crippling—not to mention the fact that seldom is there a simple, one-size-fits-all solution with which to address them.

Still, there’s hope. To hear it from the experts, three critical elements will maximize your startup’s chances of seeing another day.

1. THE RIGHT PEOPLE

Any seasoned entrepreneur can talk at length about the importance of “the team” behind a startup, and investors will agree: it’s one of the most vital components they consider when determining if they want to invest in a company.

“Too often, the entrepreneur believes that the value is in the product,” Jacques Dénommée, a partner of the Diversified Portfolio at BDC Venture Capital, says. “And what I constantly remind them of is the fact that the value is in the team you assemble, not the product. If the team is right, it will generate value, even if today’s product doesn’t exist tomorrow.”

Individuals on a well-built team provide complementary competencies covering all angles of the business requirements, and new people are added in a timely fashion to provide the needed new competencies while managing adequately headcount and budget, according to Dénommée.

2. ALIGNMENT

A misalignment is when there is a disagreement between people or groups of people in a company. Often these appear only as minor cracks at first, but if left unchecked can grow into fissures and earthquakes within a startup. Common misalignments include a board of directors clashing with management, board members clashing with each other, and management infighting. If management, investors and Board members have a shared vision of the company they intend to build, the short term issues tend to take care of themselves more readily. Misalignment on core strategy issues are harder and shareholders with conflicting agendas is a recipe for trouble.

“Key to alignment is the ability of the investor to create an environment of trust where the entrepreneur is encouraged to share his perception of the business challenges and to collaborate in seeking solutions,” said Dénommée in an interview with Techvibes.

A well-aligned board of directors, for example, doesn’t always have to agree unanimously, but they must respect the majority of the board, knowing when to push the envelope and when to back off. Meanwhile, the board and management should engage in respectful debate, but must ultimately align. And management must play and work as a team, not a bunch of heroic individuals.

Phil Anzarut, a partner of the Diversified Portfolio at BDC VC, likens management teams to sports teams: even if you bring the best players together on a sports team, if they play as individuals rather than as a team, they will lose to an opponent (read: competitor) of inferior individual players that play as a team.

And if you ignore a misalignment for too long? That is a problem which becomes “fundamental,” according to Dénommée.

Anzarut agrees. “At that point you have to go back to the drawingboard,” he told Techvibes. In more mature firms, this could result in measures as drastic as exiting the founder or replacing the chief executive officer. And he warns: “It’s a lot easier said than done.”

3. THE RIGHT STRATEGY

With an aligned, properly crafted team, the right strategy becomes the third and final core ingredient to a startup poised for success. It’s deliberately the third element to consider, because a bad team or a misalignment could cripple even the seemingly perfect strategy.

According to Dénommée, strategy must be arrived at through careful consideration of the company’s target market and value proposition, its core competencies and competitive advantage, as well as the competitive environment. It must be debated at the management level and again at the board level, says Anzarut, and it is often useful to obtain independent outside assistance to guide the discussions.

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A good strategy is three things: attainable, sustainable, and valuable. Entrepreneurs must also be mindful of their risk tolerance and should always have a mitigation plan to minimize damage in case the strategy fails miserably (which, in the startup world, happens more often than not). Also, make sure the strategy is reviewed against defined objectives , says Dénommée: assessing progress along the way can be tremendously helpful. This is especially true today, where things are changing constantly—from customers’ needs and wants to product innovations to regulatory dynamics—and consequently strategies may need to be modified midway through execution.

“Visibility will never be perfect,” affirms Anzarut.

FINAL ADVICE

Today’s tech startup entrepreneurs are typically very technology- and product-centric. This can often be a detriment.

“Technology has to be there but it’s not always going to provide success—execution will,” argues Dénommée. “People aren’t always going to line up for your technology. You can’t only invest in research and development.”

Anzarut agrees, pointing out that new entrepreneurs commonly overlook areas like marketing and sales, believing that simply building the best of something is all that is required. “Entrepreneurs must focus on customers and become their trusted advisor. Ask customers to help shape the product, go to market, delivery and other aspects of your business. Engaged and delighted customers can accelerate time to revenue and profit and improve a startup’s competitive advantage.”