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The Only One That Matters (Part 4 of Mark Andriessen's Startup Guide, 2007)

This post is about the only thing that matters for a new startup.

But first, a little theory:

If you look at a wide cross-section of startups - say, 30, 40 or more, to weed out pure coincidences and look for patterns - two facts will be obvious.

The first obvious fact: success varies extremely widely - some startups are incredibly successful, some are very successful, many are somewhat successful, and, of course, many are completely unsuccessful.

The second obvious fact: the quality and scale of the three key elements of each startup - the team, product and market - have an extremely wide spread.

Teams range from eminent to exemplary bad; products range from masterpieces to barely working; and markets range from thriving to comatose.

It makes you wonder - what is most correlated with success - a team, product or market? Frankly speaking, what leads to success ? Or what is more dangerous: a bad team, a bad product or a bad market ?

First we define the terms.

The quality of a startup team can be defined as the suitability of the CEO, senior employees, engineers and the rest of the key personnel in relation to the opportunity presented to them.

You look at the startup and ask if this team will be able to optimally work out this opportunity? I look at efficiency, not experience, as the history of the technology industry is full of successful startups, which consisted mainly of people who have never "done this before."

Product quality can be determined by how much the product impresses the customer or user who actually uses it. How easy is the product to use? How functional is it? How fast does it work? How extensible is it? How polished is it? How many mistakes are there in it?

Startup market size is the number and growth rate of customers or users of this product.

(Assume for this discussion that the acquisition cost of the client is not higher than the revenue that he will bring).

Some people object to my classification: “How great can a product be if no one wants it?” In other words, is the quality of a product determined by how attractive it is to a large number of customers?

No. Product quality and market size are completely different things.

Here is a classic scenario: the best application in the world for an operating system that no one uses. Ask any software developer for BeOS, Amiga, OS / 2 or NeXT what the difference is between a great product and a large market.

So:

If you ask entrepreneurs or investors what is more important - a team, product or market, many will answer “team”. This is an obvious answer, partly because in the beginning much more is known about the team than about a product that has not yet been created, or about a market that has not yet been studied.

Plus, we are all brought up on slogans like "people are our most important asset." In the United States, at least sentiments about the value of people permeate our culture, from school programs about self-esteem to inalienable rights to life, freedom and the pursuit of happiness from the Declaration of Independence. So the answer “team” seems correct.

Yes, and who would like to say that people do not matter?

On the other hand, if you ask the engineers, many will say "product." This is a grocery business: startups invent products, buyers buy and use products. Apple and Google are now the best companies in the industry because they create the best products. Without a product, there is no company. Start up with a great team, but without a product, or with a great market, but without a product. Are you okay at all? Now let me continue working on the product.

And personally, I will take the third position; I argue that the most important factor for a startup’s success or failure is the market.

Why?

In a good market - a market with a large number of real potential customers - the market is pulling a product from a startup.

The market must be satisfied, and the market will be satisfied with the first viable product.

The product does not have to be great, it just generally needs to work. And the market doesn’t care how good a team is if only a team can produce this viable product.

In short, customers will knock your door to get a product; the main task is to answer all calls and letters of people who want to buy it.

And when you have a good market, the team is surprisingly easy to update on the fly.

Such was the story of search advertising, online auctions, and TCP / IP routers.

Conversely, in a disgusting market you may have the best product in the world and an absolutely deadly team, but it does not matter - you fail.

You will kill years trying to find non-existent consumers of your wonderful product, and your wonderful team will eventually be demoralized and leave, and your startup will die.

This is the story of video conferencing, record keeping, and micropayment software.

In honor of Andy Rahleff, who previously worked at Benchmark Capital, who deduced this wording, let me introduce Rahleff’s law on startup success:

Company killer No. 1 is the lack of a market.

Andy says this:

  • When a great team meets a lousy market, the market wins.
  • When a lousy team meets an excellent market, the market wins.
  • When a great team meets a great market, something special happens.

Of course, you can screw up on an excellent market - and this often happened - but if the team is competent enough and the product as a whole is acceptable, an excellent market will often lead to success, and a bad market will fail. The market is most important.

And neither a stellar team, nor a fantastic product will help with a bad market.

So what?

Well, the first question: Since the team is what you have the most control over at the beginning, and everyone wants an excellent team, what does an excellent team really give?

It is hoped that a great team will give you at least a normal, and ideally a great product.

But I can give an example of a bunch of great teams that completely messed up with their products. Great products are very, very difficult to create.

It is hoped that a great team will also give you a great market, but even here you can give many examples of great teams that worked brilliantly in terrible markets and failed. Non-existent markets don't care how smart you are.

In my experience, most often great teams paired with a bad product and / or a bad market are for the second or third time among entrepreneurs whose first company was very successful. People become presumptuous and fall. Right now, one highly specialized, very successful entrepreneur is burning about $ 80 million in venture financing in his last startup, and he has practically nothing to show, except for a few cool press clippings and a couple of beta clients - because there is practically no market for what he is building .

Conversely, I can name a large number of weak teams whose startups were very successful due to the fact that the markets for their products grew at an explosive pace.

Finally, we quote Tim Sheppard: “An excellent team is a team that will always surpass a mediocre team in the same market with the same product.”

Second question: Can great products sometimes create new huge markets?

Of course.

But this happens in a good case.

VMWare has done this recently. Their product was initially so transformative that it caused a whole new movement towards virtualization of operating systems, which turned out to be a huge market.

And, of course, in such a scenario it doesn’t matter how good your team is if it is good enough to create a product of adequate quality and, in principle, bring it to the market.

I'm not saying that you should aim low in terms of team quality, or that the VMWare team was not incredibly strong - it was and is. I say: bring to the market as transformative a product as VMWare, and you will succeed. Dot.

In addition, I would not expect your product to create a new market from scratch.

The third question: what should I, as the founder of a startup, do with all this?

Let's imagine Rahleff’s conclusion about the success of a startup:

The only thing that matters is the relevance of the product to the market.

Matching a product to a market means entering a good market with a product that can satisfy it.

You can always feel when there is no conformity of a product to the market. Buyers don’t really get value from the product, rumors do not spread about it, consumption doesn’t grow much, press reviews are so-so, the sales cycle is too long, and many transactions never close.

And you can always feel the conformity of a product to the market when it is. Consumers buy a product as fast as you can produce it - or consumption is growing as fast as you can add servers. Payments from customers accumulate in your account. You hire sales and customer support staff as quickly as possible. Reporters call because they heard about your new hot thing and want to talk about it. You begin to receive the Entrepreneur of the Year Award from the Harvard Business School. Investment bankers are monitoring your home. You can eat for free at Buck's for a year.

Many startups fail before they reach the market.

In fact, I claim that they fail because they do not reach the market for the product.

I believe that the life of any startup can be divided into two parts: before the product matches the market and after the product matches the market.

Prior to matching the product to the market, focus on how to match the product to the market.

Do everything you need to achieve a product’s market fit, including replacing people, rewriting a product, moving to another market, rejecting customers when you don’t want to refuse, agreeing with customers when you don’t want to agree, raising the fourth round of venture capital with a lot of blur - all that is required.

In fact, you can ignore almost everything else.

I do not propose to ignore everything else - but judging by what I saw in successful startups, this can be done.

When you see a successful start-up, you see a start-up that has achieved a product’s conformity with the market and which, as a rule, has done a lot of other things along the way, from the channel model, to the funnel development strategy, to the marketing plan, to relations with the press, to compensation policies, and before the CEO and VC fuck. But the startup is still successful.

Conversely, there are an amazing amount of truly well-run startups.who have completely worked out all aspects of their activities - HR policies, an excellent sales model, a carefully thought-out marketing plan, excellent interviewing processes, cool food, 30-inch monitors for all programmers, top-end VCs on the board of directors - flying right off the cliff because of the inability to achieve product compliance with the market.

It's funny that when a startup is successful, and you ask the founders what made it successful, they usually call everything that has nothing to do with the market. People are unable to see the reasons. But in almost every case, the reason was actually in keeping the product in the market.

But in reality, what else could it be?

[The last paragraph - the note of the editor - is omitted.]

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