5 Questions You Must Ask to Build a Company That Lasts A VC professional shares his thoughts on team building, timing and more.
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Let's face it, most startups fail. The chances of survival are slim at best, and there are countless examples of great ideas that just didn't make it. As a former entrepreneur and now Partner at Greylock Partners, I spend my time thinking a lot about what makes a company succeed.
You've got the great idea. Asking these five questions will help ensure your idea can serve as the solid foundation to build a lasting company.
1. Do you have a great team?
There is a long-standing debate amongst many investors of what is more important – people, products or markets? I unequivocally put people first. The reason is simple: Great people build great products. Great people are great at selling the product. Remember, your team is the engine that will propel your success for the next 5 to 10 years, so make sure it's well-built. Don't get me wrong -- a strong product and big market is vital to building an amazing company, yet the road to success is a long and winding one, and people usually make the difference.
2. Does it pass the 10x test?
In addition to people, I am always asking if your product is at least ten times better than the alternatives. It has to be 10 times better, because anything less won't stick. Few consumers are early adopters -- most prefer to stay with the tried and true.
And it's not always about inventing a new product or category, but about being better -- much better. Dropbox entered a crowded field, but their delivery of a simple "Dropbox folder" that synched across all my computers and the cloud combined with their growth plan -- free storage if you invite your friends -- were more than 10x better. They were magical. You don't need to be first -- just make sure you're better in a big way.
3. Does it pass the 10-second test?
In this era of 140 characters and disappearing photos, capturing people's attention is ever more challenging. One of they keys to success is if you can describe what you do in a proverbial ten seconds.
Geoffrey Moore, in the classic entrepreneurship book Crossing the Chasm, suggested a framework that I've always used to help articulate: Who is your target customer and what's the truly compelling reason to buy. What is your product's key benefit, and how is it undeniably different than the competition -- or why is it 10x better?
Articulating your identity in 10 seconds gives you a framework for making tons of difficult decisions such as where to invest, how to go to market and more. It also gives you a simple and powerful vehicle for explaining your focus to your customers -- and investors.
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4. Am I building the next billion-dollar company?
Not all entrepreneurship requires venture capital (VC). There are lots of entrepreneurs around the world building interesting business without VC funding. However, if you're going the venture-backed route, top-tier VCs are looking for those founders focused on big ideas. From the Greylock portfolio, think Workday, Palo Networks, Facebook and Linkedin.
The reason is because venture capital is driven by the 80/20 rule -- actually, it's more like 95/5. A very small number of investments are very successful and produce the vast majority of returns. If a firm has a $1 billion fund and the firm targets a return of 5 to 10 times that to its investors, then it's tough to do with small outcomes. If a fund makes 50 investments, maybe five or fewer deliver the vast majority of results.
5. Why now?
You have a great idea -- but is the world ready?
In 2000, I personally invested and was on the board of a company called Backplace -- different than the Lady Gaga-backed company of today. The idea was that in the age of the cloud and a move to recurring revenue models, building a software as a service (SaaS) platform for billing would be like selling shovels to the gold diggers. The problem was that in 2000, there were not enough SaaS providers. Today, we are seeing the success of companies like Zuora as the number of companies relying on recurring revenue models has soared over the past decade. Timing matters.
By asking these five questions, you can take an idea and transform it into one so compelling and powerful, it can make a lasting impact for years to come. And never underestimate the last ingredient -- luck. It's hard to plan for it, but all of the above will prepare you to take advantage of Lady Luck when and if she appears.
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