Seven Reasons Startups Succeed


As a business author, advisor and former CFO for a Fortune 500 company, I have been able to have a ringside seat to watch many ideas turn into successful companies. Both as a participant and observer, I have noticed there are seven critical reasons ideas turn into thriving enterprises. They are:

  • Having a clearly defined business plan.
  • Knowing why customers want to buy your product or service.
  • Developing a strong capital base.
  • Hiring people that fit a defined culture.
  • Identifying why the business is “scalable.”
  • Maintaining a strong network of experts.
  • Creating a customer first orientation.

Having these seven critical facets of a business in place will help any business survive the difficult first days of any new business.

1. A Clearly Defined Business plan.

All businesses need to have a clearly defined plan. The plan doesn’t have to be long and wordy, but it should be focused and well thought out. It should have a clear strategic statement that tells why the business exist. For instance, Ikea’s strategic statement is:

“to create a better everyday life for the many people. We make this possible by offering a wide range of well-designed, functional home-furnishing products at prices so low that as many people as possible will be able to afford them.”

The statement provides all the messaging for the employees and vendors to know exactly what the mission is and how to execute to this mission. It doesn’t have to be flowery or extensive, just able to tell all involved where they are going.

2. Know why customers want to buy your product or service.

While ideas are great, a critical question that needs to be answered is, “Why does the customer need to buy your product?” By having a realistic and quantifiable answer to this question a company gains valuable insight on how to proceed forward. The answer defines the size of the market and requirements to satisfy the market. The answer also determines the capital and human resources needs to be able to satisfy the requirements.

3. Develop a strong capital base.

I asked a friend of mine who runs a liquidation business for businesses that have failed, “what is the single biggest factor that causes a business to fail?” His answer, “Lack of initial capital.” The hardest step in acquiring the capital and identifying how much you need. As well as, how much of the ownership are you willing to give up? Have enough capital to survive and giving up some ownership is far better than not having enough. Not having enough forces many new businesses to make short term decisions, that many times are poor and impede the “scaling up” of a new business.

4. Hire People that Match the Culture the Business Needs.

Recently I helped a small start-up that was having a hard getting off the ground. Dan, who owned the company had hired a close friend, John, to develop the software for his business. However, John’s commitment to the business was much lower than what was needed. Over time, Dan got frustrated and had to part ways with John. The lesson for Dan and all of us, is that the willingness and ability to do the job is more important than friendship. Hiring people who match the required culture and have the ability to succeed is the most part of any hiring decision.

5. Identify Why the Business is Scalable.

The first question I hear when talking to potential investors is, “Is the business scalable?” The reason this question is asked is to determine the value of their investment. If the business doesn’t have a well-defined and profitable growth plan, it will not attract capital. But also, for the business leader a scalable model lays out the critical steps to success. No investor or business owner should proceed without a solidly thought out model that shows there is profitable growth and the business is scalable.

6. Maintain a strong Network of Experts.

Running a startup business can be very lonely and daunting. Successful business owners surround themselves with people that can help. An advisory board can be set up to help the business owner with critical decisions and insight. A well-developed group should include people who have a variety of experiences and not all have the same experience. Some should be good at sales; others have strong financial acumen. The more diversified the better. There are lots of people who love helping a start-up and selecting the right group is a critical source of solid advice.

7. Create a Customer First Orientation.

Successful businesses have a customer first orientation. Customers are the reason a business exists. In most decisions the customer should always come first. For a start-up knowing how the initial customers are doing and what can be done better, is vital. Most of what is learned in the early phases of business can be leveraged as the business grows. In its early stages, Airbnb’s owners visited all their customer to find out; “What worked and What didn’t.” From these experiences they developed a strong and scalable business. The key phrase for any successful business is, “The customer comes first!”

Turning an idea into a great company is hard work. With a well-defined business plan, a deep understanding of customer needs and superior execution success it is doable. Being committed to learning and changing along the journey is vital. These seven steps will give any business a head start.

*Article originally published on Young Upstarts