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STARTUP

This Is The Real Reason Startups Succeed–And No, It’s Not Money

Idealab founder, Bill Gross, says successful startups have this factor in common.

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BY Marla Tabaka - 19 Mar 2018

PHOTO CREDIT: Getty Images

The number of self-employed people in the U.S. has grown by nearly 150,000 since 2014 to 8,751,000. This number is up from 8,602,000 at the end of 2016. This data from the Bureau of Labor Statistics is in many ways exciting, especially for a business coach. Yet, I can't help but think about the failure and disappointment that lies ahead for the majority of small business owners who are included in this data.

According to Bill Gross, founder of Idealab, it's not idea, plan or business model, team, or surprisingly even the money that's the most significant factor in a startup's success. It's all in the timing. Gross studied 100 companies and discovered that a startup's timing accounted for 42 percent of the difference between success and failure.

In this Ted Talk Gross uses one of Idealab's startups as an example. Z.com was an online entertainment company. They raised enough money, had a great business model, and even signed well-known Hollywood talent to join the company. The problem for Z.com was that broadband penetration was too low in 1999-2000. Do you remember trying to watch video content online back then? It was miserable. You had to put codecs in your browser and find workarounds for all sorts of issues. These challenges forced the company out of business in 2003. A mere two years later, YouTube launched a similar platform that would quickly grow into the insanely popular video-sharing website it is today. The difference? The codec problem was solved by Adobe Flash and broadband penetration quickly crossed 50 percent in America.

You may have a brilliant idea, but if the timing is off you are likely to fail. Here are some important things to consider.

Are you personally ready?

One of the top things entrepreneurs talk to me about is their exhaustion. They're overwhelmed on a number of levels, and guilt is especially high for parent-entrepreneurs. Not to mention the costs associated with starting a business. Too many new entrepreneurs place an equity line on their home, only to find themselves in perpetual debt. Frankly, it's difficult to circumvent some of these problems, so you have to be prepared for them. Is this the best time in your life to start a business? How will you balance the sacrifice, keep yourself healthy, and maintain a strong, supportive mindset as you invest yourself into your new venture? Be honest with yourself and your family. If you're not prepared to put many aspects of your life aside for hours a day, this may not be good timing for you.

How's the competition doing?

When I owned my coffee house people assumed I would despise Starbucks for creating such competition. There's much to learn from the giants and companies like Starbucks are responsible for creating a culture that can pave the path for smaller companies. Today, independent coffee houses have a significant opportunity; I don't think that would be true if it weren't for Starbucks.

Examine your prospective competitors. What are they doing well and what are they lacking? How will you be different--even better? Is there no competition because your idea is groundbreaking and innovative? If yours is an emerging market test the idea vigorously, and not just with family and friends.

What's the market research say?

What are the barriers to success? How do you know there's a demand for your product or service? What evidence is there to show you will succeed? What problem do you solve and what opportunity or experience does your idea present to consumers or businesses? Have others attempted something similar and failed? These failures are a perfect learning opportunity for you. How do you differentiate yourself in the market?

Have you gained enough traction to attract funding?

Gross points out that acquiring funding is "easy" if a company has gained enough traction in the market. People often believe that if they have a great idea someone will come along to back it. That's a rarity. On the other hand, not all investors look for significant profits before they consider funding a startup. You can de-risk your investment opportunity, by demonstrating market engagement. Since timing is everything, don't be too slow or too fast in entering the market. Your timing is evidence of your ability to make smart decisions and evaluate risk.

Small business makes the world go round in my opinion. Time it right and you'll enjoy the ride.

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