The single biggest reason why start-ups succeed | Bill Gross | TED

0:12 I'm really excited to share with you some findings

0:15 that really surprise me about what makes companies succeed the most,

0:20 what factors actually matter the most for startup success.

0:25 I believe that the startup organization is one

0:27 of the greatest forms to make the world a better place.

0:31 If you take a group of people with the right

0:34 equity incentives and organize them in a startup,

0:36 you can unlock human potential in a way never before possible.

0:40 You get them to achieve unbelievable things.

0:43 But if the startup organization is so great, why do so many fail?

0:47 That's what I wanted to find out.

0:48 I wanted to find out what actually matters most for startup success.

0:52 And I wanted to try to be systematic about it,

0:54 avoid some of my instincts and maybe misperceptions I

0:57 have from so many companies I've seen over the years.

1:00 I wanted to know this because I've been starting businesses since I was 12

1:03 years old when I sold candy at the bus stop in junior high school,

1:07 to high school, when I made solar energy devices,

1:09 to college, when I made loudspeakers.

1:11 And when I graduated from college, I started software companies.

1:14 And 20 years ago, I started Idealab, and in the last 20 years,

1:17 we started more than 100 companies, many successes, and many big failures.

1:21 We learned a lot from those failures.

1:23 So I tried to look across what factors

1:26 accounted the most for company success and failure.

1:29 So I looked at these five.

1:31 First, the idea.

1:32 I used to think that the idea was everything.

1:34 I named my company Idealab for how much I worship

1:36 the "aha!" moment when you first come up with the idea.

1:39 But then over time, I came to think that maybe the team,

1:42 the execution, adaptability, that mattered even more than the idea.

1:46 I never thought I'd be quoting boxer Mike Tyson on the TED stage,

1:50 but he once said, "Everybody has a plan,

1:53 until they get punched in the face." (Laughter)

1:56 And I think that's so true about business as well.

1:59 So much about a team's execution is its ability

2:02 to adapt to getting punched in the face by the customer.

2:05 The customer is the true reality.

2:07 And that's why I came to think that the team maybe was the most important thing.

2:12 Then I started looking at the business model.

2:14 Does the company have a very clear path generating customer revenues?

2:17 That started rising to the top in my thinking

2:19 about maybe what mattered most for success.

2:21 Then I looked at the funding.

2:23 Sometimes companies received intense amounts of funding.

2:25 Maybe that's the most important thing?

2:27 And then of course, the timing.

2:29 Is the idea way too early and the world's not ready for it?

2:32 Is it early, as in, you're in advance and you have to educate the world?

2:35 Is it just right?

2:36 Or is it too late, and there's already too many competitors?

2:39 So I tried to look very carefully at these five factors across many companies.

2:42 And I looked across all 100 Idealab companies,

2:45 and 100 non-Idealab companies to try

2:47 and come up with something scientific about it.

2:49 So first, on these Idealab companies, the top five companies— Citysearch,

2:54 CarsDirect, GoTo, NetZero,

2:56 Tickets.com— those all became billion-dollar successes.

2:59 And the five companies on the bottom— Z.com, Insider Pages, MyLife,

3:02 Desktop Factory, Peoplelink— we all had high hopes for, but didn't succeed.

3:06 So I tried to rank across all of those attributes

3:09 how I felt those companies scored on each of those dimensions.

3:13 And then for non-Idealab companies, I looked at wild successes,

3:16 like Airbnb and Instagram and Uber and Youtube and LinkedIn.

3:20 And some failures: Webvan, Kozmo, Pets.com Flooz and Friendster.

3:24 The bottom companies had intense funding,

3:26 they even had business models in some cases, but they didn't succeed.

3:29 I tried to look at what factors actually accounted

3:32 the most for success and failure across all of these companies,

3:35 and the results really surprised me.

3:37 The number one thing was timing.

3:39 Timing accounted for 42 percent of the difference between success and failure.

3:44 Team and execution came in second,

3:46 and the idea, the differentiability of the idea,

3:49 the uniqueness of the idea, that actually came in third.

3:51 Now, this isn't absolutely definitive,

3:53 it's not to say that the idea isn't important,

3:56 but it very much surprised me that the idea wasn't the most important thing.

3:59 Sometimes it mattered more when it was actually timed.

4:02 The last two, business model and funding, made sense to me actually.

4:05 I think business model makes sense to be that low because you can start out

4:09 without a business model and add one later

4:11 if your customers are demanding what you're creating.

4:13 And funding, I think as well,

4:15 if you're underfunded at first but you're gaining traction,

4:18 especially in today's age, it's very, very easy to get intense funding.

4:21 So now let me give you some specific examples about each of these.

4:24 So take a wild success like Airbnb that everybody knows about.

4:27 Well, that company was famously passed

4:29 on by many smart investors because people thought,

4:31 "No one's going to rent out a space in their home to a stranger." Of course,

4:35 people proved that wrong.

4:36 But one of the reasons it succeeded, aside from a good business model,

4:39 a good idea, great execution, is the timing.

4:42 That company came out right during the height

4:44 of the recession when people really needed extra money,

4:47 and that maybe helped people overcome their objection

4:49 to renting out their own home to a stranger.

4:51 Same thing with Uber.

4:52 Uber came out, incredible company,

4:54 incredible business model, great execution, too.

4:57 But the timing was so perfect for their need to get drivers into the system.

5:00 Drivers were looking for extra money; it was very, very important.

5:03 Some of our early successes, Citysearch, came out when people needed web pages.

5:07 GoTo.com, which we announced actually at TED in 1998,

5:10 was when companies were looking for cost-effective ways to get traffic.

5:13 We thought the idea was so great,

5:15 but actually, the timing was probably maybe more important.

5:17 And then some of our failures.

5:19 We started a company called Z.com, it was an online entertainment company.

5:22 We were so excited about it— we raised enough money,

5:25 we had a great business model,

5:26 we even signed incredibly great Hollywood talent to join the company.

5:29 But broadband penetration was too low in 1999-2000.

5:32 It was too hard to watch video content online,

5:34 you had to put codecs in your browser and do all this stuff,

5:37 and the company eventually went out of business in 2003.

5:39 Just two years later, when the codec problem was solved by Adobe Flash

5:43 and when broadband penetration crossed 50 percent in America,

5:47 YouTube was perfectly timed.

5:49 Great idea, but unbelievable timing.

5:51 In fact, YouTube didn't even have a business model when it first started.

5:54 It wasn't even certain that that would work out.

5:57 But that was beautifully, beautifully timed.

5:59 So what I would say, in summary, is execution definitely matters a lot.

6:03 The idea matters a lot.

6:04 But timing might matter even more.

6:06 And the best way to really assess timing is to really look

6:09 at whether consumers are really ready for what you have to offer them.

6:12 And to be really, really honest about it,

6:14 not be in denial about any results that you see,

6:16 because if you have something you love,

6:18 you want to push it forward, but you have to be very,

6:21 very honest about that factor on timing.

6:23 As I said earlier, I think startups can change

6:25 the world and make the world a better place.

6:27 I hope some of these insights can maybe

6:29 help you have a slightly higher success ratio,

6:31 and thus make something great come

6:33 to the world that wouldn't have happened otherwise.

6:35 Thank you very much, you've been a great audience.

6:37 (Applause)