What are the traits of startups that go on to become large companies and make a big impact? While the answer can vary depending on industry and business model, in this post we present four of the most common characteristics of successful startups.
What Is a Startup?
Before we dive into the common characteristics of successful startups, it’s helpful to remind ourselves what a startup is.
In the media and popular discourse, it often seems as if the term “startup” is being applied to any small business and also to tech companies of all sizes and stages. But, as General Assembly explains, “there’s a vast ideological (and organizational) difference between a startup, small business, and large corporation, which necessitates different funding strategies and KPIs.”
General Assembly continues:
According to serial entrepreneur and Silicon Valley legend Steve Blank, a startup is a “temporary organization designed to search for a repeatable and scalable business model.”
A startup, which he argues in the context of the tech industry (and this conversation) should be short for “scalable startup,” is searching to not only prove their business model, but to do so quickly, in a way that will have a significant impact on the current market.
OK, now that we’re clear on the definition of a startup, let’s discuss the top four characteristics of successful startups.
1. Be Disruptive
One of the defining characteristics of successful startups is disruption.
Returning to the General Assembly article referenced above:
As Blank describes it, a scalable startup founder doesn’t just want to be her own boss; she wants to take over the universe. From day one her intent is to grow her startup into a large, disruptive company. She believes that she has come across the next “big idea,” one that will truly shake up the industry, take customers from existing companies, or even create a new market.
Success Story: We Are Pop Up
Take the example of We Are Pop Up. This UK-based startup, which calls itself “the world’s largest P2P marketplace of retail space,” connects artists, designers, and entrepreneurs with landlords renting out their properties on a short-term basis.
This is a highly useful service for an artist who wants to sell her collection or a retailer who wants to try a certain location without having to commit long term.
We Are Pop Up is lowering the risk of investing heavily in a location only to see it fail. In the process, this startup is disrupting the antiquated commercial real estate industry.
2. Start with a Small Market
When it comes to successful startups, there’s a lot of talk about the importance of having a huge market.
It’s true that a startup must eventually reach a large market in order to turn into a large company. But, at the beginning, it’s actually best to start with a small market.
As we covered in a previous post, PayPal co-founder and early Facebook investor Peter Thiel “advises beginning with a really small market, taking over said market, and then expanding that market in concentric circles.”
As Thiel explained in his “How to Start a Startup” lecture at Stanford University, “the biggest mistake you can make as a young startup is going after a giant market from the get-go. That signifies that you haven’t defined categories correctly. And you’re going to be dealing with too much competition in one way or another.”
Success Story: Alfred
So what’s an example of a successful startup that started by going after a small market?
Alfred, a on-demand butler service that won TechCrunch Disrupt in 2014, is targeting young professionals who have no time to clean their houses or run errands. Their service provides trained individuals to take those tasks off customers’ hands at an affordable price.
Sure, Alfred could extend their services to anyone wanting to hire a butler. But for now, the company is focusing specifically on young professionals in a handful of US cities, making sure to establish an excellent service for these customers before expanding to other demographics.
Related to starting with a small market, another characteristic of successful startups is focus.
When starting a company from the ground up, especially with a very small team, it’s easy to take on too many projects and get spread too thin. Unfortunately, this can kill your startup.
As Y Combinator co-founder Paul Graham writes, “Though the immediate cause of death in a startup tends to be running out of money, the underlying cause is usually lack of focus.”
Success Story: BlaBlaCar
So what’s an example of a successful startup that demonstrates the power of focus? Let’s take a look at BlaBlaCar.
Unlike other transportation startups, this French startup is solving for a very specific use case: carpooling for traveling. Their service (a great example of an online marketplace) connects drivers with others who are traveling in the same direction to cut down on expenses and potentially even make new friends.
According to TechCrunch, BlaBlaCar raised a $100 million round in 2014 and has now expanded to 20 million users in 18 different countries, all while remaining focused on their original use case. How’s that for winning by focusing?
4. Provide an Amazing User Experience
By definition, startups are new companies. They can’t rely on brand loyalty built up over years or decades like their big, entrenched competitor can do.
This is one reason why providing a useful product that’s easy yet delightful to use is so important to the business’s long-term success.
As Kevin Hale, founder of Wufoo and partner at Y Combinator, explains: “My philosophy behind a lot of things that I teach in startups is, the best way to get to $1 billion is to focus on the values that help you get that first dollar to acquire that first user. If you get that right, everything else will take care of itself.”
Success Story: Instacart
A great example of this is Instacart, which allows you to shop for groceries from your local store and have them delivered to your door within an hour or so.
It’s not the only on-demand grocery service currently available. But, as this recent Business Insider article shows, it’s winning by providing an amazing user experience.
“What really sold me on Instacart is the customer service,” writes Megan Willett. “When I checked out, I was asked if a certain selection wasn’t available in the store, would I care more about the brand or about the price? This is a really great question to ask — I didn’t personally have a preference, but some people might.”
She continues, “It was a close call between AmazonFresh and Instacart, but ultimately, the customer service at Instacart won me over in the end.”
Whether a startup will succeed and grow into a long-lasting company is based on a variety of factors. But, in examining the landscape as a whole, it is possible to identify some common characteristics of successful startups.
In this post, we have explored four of these shared traits, including being disruptive, starting with a small market, remaining focused, and providing an amazing user experience.
What additional characteristics do you believe lead to startup success? We’d love to chat about them on Twitter!
Additional research and writing for this post provided by Becky Cruze