Bill Gross has founded a lot of startups, and incubated many others — and he got curious about why some succeeded and others failed. So he gathered data from hundreds of companies, his own and other people’s, and ranked each company on five key factors. He found one factor that stands out from the others — and surprised even him.
Bill Gross is the founder of Idealab, a business incubator focused on new ideas. (He’s now the chair and CEO.) He helped create GoTo.com, the first sponsored search company. He also created the Snap! search engine, which allows users to preview hyperlinks.
Gross has been an entrepreneur since high school, when he founded a solar energy company. In college, he patented a new loudspeaker design, and after school he started a company that was later acquired by Lotus, and then launched an educational software publishing company. Now, he serves on the boards of companies in the areas of automation, software and renewable energy.
“I believe that the startup organisation is one of the greatest forms to make the world a better place,” Bill Gross said, as he opened his TED Talk earlier this year in Vancouver, Canada.
“If you take a group of people with the right equity incentives and organise them in a startup, you can unlock human potential in a way never before possible. You get them to achieve unbelievable things,” he added.
“But if the startup organisation is so great, why do so many fail?,” he asked.
His presentation was focused on his findings from data gathered from hundreds of companies. He asked “what actually matters most for startup success“.
He said, “I wanted to know this because I’ve been starting businesses since I was 12 years old, when I sold candy at the bus stop in junior high school; to high school, when I made solar energy devices; to college, when I made loudspeakers. And when I graduated from college, I started software companies. And 20 years ago, I started Idealab. In the last 20 years, we started more than 100 companies, many successes and many big failures. We learned a lot from those failures.”
The five essential elements that lead to success.
Gross has looked at companies in his portfolio, combined with industry knowledge and has eventually come up with a list of five factors, which he believes, “account the most for company success and failure.”
1. The Idea
First, the idea. “I used to think that the idea was everything. I named my company Idealab for how much I worship the “aha!” moment when you first come up with the idea. But then over time, I came to think that maybe the team, the execution, adaptability mattered even more than the idea,” he said.
2. The Team behind it
Gross said, “I never thought I’d be quoting boxer Mike Tyson on the TED stage, but he once said, “Everybody has a plan, until they get punched in the face.” And I think that’s so true about business as well. “So much about a team’s execution is its ability to adapt to getting punched in the face by the customer.”
“The customer is the true reality. And that’s why I have come to think that the team maybe was the most important thing.”
3. Business model
“Then I started looking at the business model. Does the company have a very clear path generating customer revenues? That started rising to the top in my thinking about maybe what mattered most for success,” He said.
“Then I looked at the funding. Sometimes companies received intense amounts of funding. Maybe that’s the most important thing?” Gross said.
He said, “And then of course, the timing. Is the idea way too early and the world’s not ready for it? Is it early, as in, you’re (in) advance and you have to educate the world? Is it just right? Or is it too late, and there’s already too many competitors?”
Digging depper, Gross “looked across all 100 Idealab companies and 100 non-Idealab companies to try and come up with something scientific.”
He first focused on Idealab companies; the top five companies — Citysearch, CarsDirect, GoTo, NetZero, Tickets.com — those all became billion-dollar successes. “And the five companies on the bottom — Z.com, Insider Pages, MyLife, Desktop Factory, Peoplelink — we all had high hopes for, but didn’t succeed,” he said.
He continued, “I tried to rank across all of those attributes, how I felt those companies scored on each of those dimensions. And then for non-Idealab companies, I looked at wild successes like Airbnb, Instagram, Uber, YouTube and LinkedIn.”
Gross also considered some of the biggest failures of all time “some failures: Webvan, Kozmo, Pets.com, Flooz and Friendster. The bottom companies had intense funding; they even had business models in some cases, but they didn’t succeed. I tried to look at what factors actually accounted the most for success and failure across all of these companies, and the results really surprised me,” he said.
Eventually, the intense research led Gross to believe that:
“The number one thing was…timing.”
“Timing accounted for 42 per cent of the difference between success and failure. Team and execution came in second, and the idea, the differentiability of the idea, the uniqueness of the idea, that actually came in third,” he said.
“The last two, business model and funding, made sense to me actually. I think (a) business model makes sense to be that low, because you can start out without a business model and add one later if your customers are demanding what you’re creating. And funding, I think as well, if you’re underfunded at first but you’re gaining traction, especially in today’s age, it’s very, very easy to get intense funding,” he added.
Gross went on to use Airbnb as an example. He said that at first Airbnb was “famously passed on by many smart investors because people thought, ‘No one’s going to rent out a space in their home to a stranger’. Of course, people proved that wrong. But one of the reasons it succeeded, aside from a good business model, a good idea, great execution, is the timing.”
He believed that Airbnb came out right during the height of the recession during the last decade, “when people really needed extra money, and that maybe helped people overcome their objection to rent out their own home to a stranger.”
“Same thing with Uber. Uber came out: incredible company, incredible business model, great execution, too. But the timing was so perfect for their need to get drivers into the system. Drivers were looking for extra money; it was very, very important,” he added.
He then talked about the failures, companies that should have succeeded, but came into the market at a poor time. “We started a company called Z.com. It was an online entertainment company. We were so excited about it — we raised enough money, we had a great business model, we even signed incredibly great Hollywood talent to join the company. But broadband penetration was too low in 1999-2000. It was too hard to watch video content online; you had to put codecs in your browser and do all this stuff, and the company eventually went out of business in 2003,” he said.
It was a “great idea, but unbelievable timing. In fact, YouTube didn’t even have a business model when it first started. It wasn’t even certain that it would work out. But that was beautifully, beautifully timed,” Gross explained.
Timing is everything!
“So what I would say, in summary, is execution definitely matters a lot. The idea matters a lot. But timing might matter even more. And the best way to really assess timing is to really look at whether consumers are really ready for what you have to offer them. And to be really, really honest about it, not be in denial about any results that you see, because if you have something you love, you want to push it forward, but you have to be very, very honest about that factor on timing.” he said.
“As I said earlier, I think startups can change the world and make the world a better place. I hope some of these insights can maybe help you have a slightly higher success ratio, and thus make something great come to the world that wouldn’t have happened otherwise.” Gross concluded.