In 2013, I wrote a light piece for Forbes about the “Six Whopping Lies Told About Entrepreneurs” but in hindsight I left out the biggest myth of all about entrepreneurship itself. The single most overrated, and yet common, belief about entrepreneurship is that the idea is paramount.
Yes, an idea is necessary, but it is so much less important than the discipline and process with which the idea is pursued. And, interestingly, all of these are even less important than the quality of the founding team.
The belief that the idea is important becomes invalidated when you work with successful entrepreneurs and begin to see a common pattern emerge: how an original idea morphs and evolves over time as the team does primary market research and starts to focus on customer needs, rather than their initial eureka moment. This observation is borne out in recent research by Professor Matt Marx of MIT, summarized in “Shooting for Startup Success? Take a Detour,” showing that for successful entrepreneurs, the idea they originally started out with is rarely the same as what they ended up succeeding with.
The idea of a better search engine wasn’t novel before Google got started; its value creation was all in the high-quality execution. Similarly, the concept of an electric car was not new when Elon Musk started Tesla, yet it has experienced unprecedented success while others before and since have failed. Likewise for the smartphone and Apple.
Valuing a company is always a mix of science and art, especially for startups. Historically the science has been pretty simple: Find comparable companies and do a multiple of earnings or revenue.
However, three drivers of startup valuation have emerged that are changing the game. “Acquihire,” is the act of buying out a company for the skills and expertise of its staff. It has become so well-known that it is even listed in the Oxford English Dictionary. When Facebook buys a company like Hot Potato, it’s not for the revenue stream or products — it’s for the employees.
February 2014 will go down in history as a month with two huge startup exits: Nest (acquired by Google for a whopping $3.2 billion) and WhatsApp (acquired by Facebook for an even more whopping $19 billion).
If you haven’t caught the startup bug, there’s a good chance you will have caught it after this. What’s everybody waiting for? Let’s all go start companies!
Lest everybody get carried away with these success stories, let’s look at some statistics. In May 2013, Paul Graham, founder of Y Combinator—arguably the most prestigious incubator in the U.S.—tweeted an interesting piece of data: 37 of the 511 YC companies to date had valuations of, or had sold for, $40 million or more. That’s great for the companies in the list (which includes Dropbox). But what about the 474 left off the list?
Not to be a wet blanket, but this statistic basically says an elite startup, incubated by the best of the best, has a less than 1 in 10 chance of becoming a big success.
This is the story of Nate, John, Chris and Tyler, who started a company while attending MIT and decided to stay in school while working on their startup at the same time.
I first met Nate Robert and John Reynolds in March 2013. Nate (then 22) and John (then 21) were seniors studying Mechanical Engineering at the time. In the previous semester, Nate and John took a mechanical design class (MIT 2.009), where they became intrigued by the problem of delivering beer to pubs without elevator access. Traditionally, beer distribution companies use dollies that cost around $300 each. Delivery personnel would stack two kegs on each dolly, then bend over and bounce 320lb of beer up and down flights of stairs. Not only does this destroy the dollies, but repetitive back strain for delivery men results in a high injury rate, costing these companies millions of dollars every year.
During my recent visit to Seattle with MIT Sloan’s Technology Club, the city impressed me as a vibrant, outdoorsy town with a dynamic technological ecosystem. And man, do Seattleites love their teams.
As a native of Boston — a city famous for its rabid sports culture — I have to hand it to Seattle, whose fans regularly cause earthquakes by cheering for their football team. (According to seismologists, Seahawks fans shook the ground under CenturyLink Field during the recent playoff game against the New Orleans Saints, causing the second Seattle fan-generated earthquake in three years.) Respect.
Fervent fans aside, what I found most striking about the city was its entrepreneurial spirit. Sure, I knew about the creative work done by Seattle’s blue chip behemoths: Microsoft and Amazon. But I hadn’t appreciated the city’s thriving startup culture.