danielayele's posterous

Back in August super-angel Dave McClure gave a talk at FounderConference  The theme of his talk to attendees was this: “90% of you will fail.”

While the probability of failure with early stage startups is probably that high, the problem I have with this rhetoric is that this inevitably gets translated into “there is a 90% chance that you will fail,” making the critical assumption that startup success is a function of chance. Although chance does play a pretty big part in startup success, ultimately, business success is primarily a non-random event and is mostly a function of a business' ability to deliver value to customers (and to earn more than the cost of providing that value).

In order to determine the success potential of a startup we must first define what a startup is. Is it a group of guys people who get together to hack away some code on a cool web app? Or is it an incorporated firm with a clear path to cash and a product that offers real value to customers? Arguably, both could be considered “startups,” which only further obfuscates the issue as its impossible to tell whether or not these “startups” are “successes” or “failures” if we can't even properly define them.

Second, assuming that we agree on some definition of what constitutes a startup, we must then define what startup failure is. This is actually really tricky. Even if we assume that we're talking about incorporated firms with clear paths to cash and a real value add, would a forced sale to a competitor due to price/competitive pressures be a success? What about an asset sale that offers a minimal return to investors and a small earn-out to founders? What is the bright line here?

In order to try to clarify Dave's point, and possibly distribute some value advice to entrepreneurs, in my opinion the three obvious factors that appear to have a substantial effect on a startup's eventual success or failure.

1. The quality of the founding team

2. The size of the market

3. The value proposition of the product

Oddly enough, not a single one of these factors is subject to chance. In fact, they are all variables that can be controlled quite easily by entrepreneurs. The best advice that any entrepreneur can receive is really quite simple: work with great people, chase a big market, and deliver lots of value to your end users. Don't leave your success up to chance, because it probably won't help you.