Let’s ask – What makes a Successful Startup?
Answer: Data focus (not ‘tech’ focus)
Let me explain…
If we follow the startup and business media we can fall into the trap of believing that only ‘tech’ focused companies can be successful startups.
This article is about how we can avoid that trap. Let’s begin by asking about how successful startups use data instead of asking whether they are ‘tech’ companies. And then, how we use this insight to make sure that we are the winners in our sectors.
Firstly, all the startups and founders I work with use tech in important ways but that doesn’t make them all ‘tech’ focused companies.
What connects these different types of business, and why they are successful, is that they all use data to give themselves an unfair advantage.
Hence, you don’t have to be a ‘tech’ company to succeed – but you do need to be a data driven startup!
So where did the talk about ‘tech’ come from and how can we use the ‘data focus’ insight?
No doubt it came from numerous sources but one good example is the famous investor and founder of Netscape. Marc Andreessen argued that soon, all businesses will be ‘tech businesses’ (see this insightful discussion). And by implication, any non-tech business will be out of business!
So, am I disagreeing with a hugely successful Silicon Valley icon?
The insight I want to share is that Successful Startups – ‘tech’ or otherwise – use data in a way to give themselves a competitive advantage.
And, the fastest growing ‘data driven businesses’ use data more powerfully and with greater impact than their competitors.
It is this ability to use data that sets them on a path of a) faster growth and, as a consequence, b) increasing use of technology.
It is the desire to capture and use data in a variety of different ways that drives a business to use and deploy more and more software…
…and these two trends – seeking more data and subsequently using more software – are what ultimately make a business a ‘tech business’ as described by Andreessen.
Note, Andreessen also says
in every market, over the long run, the leading company is going to be the best software company.
This, he acknowledges, is a controversial statement – not least because some businesses – transport, hospitality, medical care – require physical delivery of their product!
However, if we use the insight that for ‘best software’ startup we really mean the ‘best use of data’ company (and the software required for that usage) then I agree.
In fact, Andreessen himself says something similar
Software can be used as a lever for the real world. Think about Uber & Lyft: a programmer sits down, writes software, and now the real world completely reconfigures themselves around this. The way people call for a ride has completely shifted.
Data is the lever
My point here, is that the lever is data. That the capture and creation of new data points and the organisation of that data to enable the ‘real world [to] reconfigure’.
However, before you rush off and gather up loads of ‘data’ – be careful that you don’t overdose on the data!
What we are seeking here is the data that creates a ‘lever’.
There are three main areas where a successful startup can use data:
- production of a product or delivery of a service
- acquisition of customers and users
- empowering customers and users to make new choices
Be careful though, much of the data we look at is interesting but not useful. For instance, if the data / numbers go up or down and it doesn’t move the dial, or swing the pendulum in key areas, then its worthless.
The work here requires a process of gathering and rejecting data. And then seeking new data and reorganising that new data until the levers become crystal clear. Then we can then focus all resources onto creating, using and deploying that data.
The key word here is: process!
A process takes time.
This is why growth hackers speak about a North Star. A North Star is the ability to distil all the data points and measurements into a single metric that drives the greatest amount of growth and value in a startup.
Many of you know that a favourite saying is ‘I’m sorry this such a long essay, I didn’t have time to write a short one’ – well, that also applies to data!
There is effort and skill in distilling what matters.
And, this is why I use scorecards with my fellow founders – to capture the data – and then distil the data points down to the bare essentials!
Similarly, it is why I use the canvas structure to help founders think through their startup at different stages in a concise format.
The canvas format forces us to answer a small number of key questions – typically based around six topics – so that we gain clarity and focus! And reveal the gaps in our thinking or startup plan!
I’ve just created a new canvas for Seed Funding.
The goal for each of these is the same – whether a scorecard or a canvas – it is to distil what really matters so that you can focus all your resources onto just those key points.
However, the new insight is that your startup decisions; how your build or make your product, how you reach your customers, how you empower your customers etc, needs to be driven by data.
And that the urge to capture and deploy data will drive your engagement and use of software. And it is this data and software focus which will make you (or keep you as) a ‘tech business’ as I believe Andreessen means.
If Andreessen is right – and he often is – then who ever best solves the data challenges and opportunities for your business, and your customers, will win.
Final question: do you want to win? Well, of course…
So, here’s a critical coaching question to ask your teams:
If you (or your customers) could know one new thing about your business (or service/ product) – what is that ‘thing’?
And how can you begin to capture data or track progress to begin to understand that ‘thing’ better and empower users and customers?
(Note, as you go through the process, you are allowed to shift your focus to other ‘things’).
Perhaps you might ask this question with your teams too?