Startups Built to Last
Observations and theories on startup longevity
What predicts startup longevity?
Last week I wrote about Founder Commitment and Ambition and my 25-startup data set of closures, acquisitions, long-running companies, and one IPO.
I went back and looked at the companies still standing, and a few things stood out:
all were built to address a fairly personal pain point of the founder
all found product-market fit early on (though in some cases, it was a more modest market opportunity)
none have had a huge pivot in the past ten years
Based on that, I’ll suggest a theory. It’s just a theory, and I’d need to see more data before I’d assert that it’s true.
Mike’s Startup Longevity Theory
There are three primary drivers of startup longevity:
Product-market fit
Founder-market fit
Founder commitment
Companies missing both product-market fit and founder drive have virtually no chance of success.
Companies without product-market fit require founder commitment to iterate and discover a valuable business opportunity. However, the more the company iterates, the more likely it is that they get to a product that doesn’t have founder-market fit.
Companies that have product-market fit but are missing one or both of the other drivers may grow quickly, but are more likely to wind up as acquisitions1.
Companies that have all three are by far the most likely to survive long-term.
If a founder has worked on a problem before, and is solving that problem, it’s likely that there is at least a moderate level of product-market fit and a high level of founder-market fit. Companies in that category aren’t necessarily set up for home runs, but they have effectively de-risked items (2) and (3) and are far less likely to flame out.
Measuring Founder Ambition and Commitment
Aditya Agarwal asked a great question:
Curious how do pick up ambition/commitment? Any tell-tale signs early on, as you interacted with them and retrospectively?
Measuring founder ambition and commitment is hard.
Ambition is something I am more able to intuitively gauge. When speaking with a founder, I ask myself “is this someone whose pitch I would buy into if I were a few years out of school and looking to work at a startup with high potential?” If the founder could have convinced me to join, I usually feel comfortable with their level of ambition.
I’m not quite sure how to gauge commitment, though. It’s quite important to success with startups (and many other things in life). I’m going to think on it more — if you have suggestions on theories or books, please share in the comments!
Several of my investments fall into this category and were positive outcomes. I would also put one of my startups, Circle of Moms, in this category. My co-founder and I pivoted into that business, it did not have a high level of founder-market fit, and we wound up selling it after running the company for almost four years.