Web start-up success dependent on mentors: Report

Internet start-ups who co-found their business and learn from mentors are more likely to be successful, according to a new report by US seed accelerator Blackbox.

The brainchild of serial entrepreneur Max Marmer, Blackbox recently launched the Startup Genome Project, an in-depth analysis of makes internet start-ups successful based on data from more than 650 early stage start-ups.

“The goal of the Startup Genome Project is to increase the success rate of start-ups and accelerate the pace of innovation around the world by turning entrepreneurship into a science,” the report states.

“Most founders don’t know what they should be focusing on and consequently dilute their focus or run in the wrong direction.”

“The goal of the report is to lay the foundation for a new framework for assessing start-ups more effectively by measuring the thresholds and milestones of development that internet start-ups move through.”

“We found that internet start-ups move through similar thresholds and milestones of development, which we segmented into stages. Start-ups that skipped these stages performed worse.”

“Our foundation structure of start-up assessment is the start-up lifecycle… The start-up lifestyle is made of six stages of development.”

1. Discovery (five to seven months). Start-ups are focused on validating whether they are solving a meaningful problem and whether anybody would hypothetically be interested in their solution.
2. Validation (three to five months). Start-ups are looking to get early validation that people are interested in their product through the exchange of money or attention.
3. Efficiency (five to six months). Start-ups refine their business model and improve the efficiency of their customer acquisition process. Start-ups should be able to efficiently acquire customers in order to avoid scaling “with a leaky bucket”.
4. Scale (seven to nine months). Start-ups step on the gas pedal and try to drive growth very aggressively.
5. Profit maximisation (not assessed in the report).
6. Renewal or decline (not assessed in the report).

According to the report, start-ups that have helpful mentors, and learn from start-up thought leaders, raise seven times more money and have 3.5 times better user growth.

“Companies that follow start-up thought leaders are 80% more likely to raise money. Almost all companies that raised money had helpful mentors. Companies without helpful mentors almost always failed to raise funding,” the report says.

The report reveals that investors who provide hands-on help have little or no effect on the company’s operational performance, “but the right mentors significantly influence a company’s performance and ability to make money.”

The report also reveals that solo founders take 3.6 times as long to reach scale stage compared to a founding team of two.

“Business-heavy founding teams are 6.2 times more likely to successfully scale with sales-driven start-ups than with product-centric start-ups,” the report says.

“Technical-heavy founding teams are 3.3 times more likely to successfully scale with product- centric start-ups with no network effects.”

Meanwhile, balanced teams with one technical founder and one business founder raise 30% more money, have 2.9 times more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.

According to the report, founders overestimate the value of IP before product market fit by 255%.

The report states that start-ups need two to three times longer to validate their market than most founders expect, and this underestimation creates pressure to scale prematurely.

“Premature scaling is the most common reason for start-ups to perform worse. They tend to lose the battle early on by getting ahead of themselves,” it says.