The startup success spectrum

I recently posted an article on the success of startup ecosystems and I wrote about how we have a survival-rate bias in the startup industry because bankruptcy (or survival) is so easy to define, and we have such a hard time to define success. Just google “ startup success rate” and see what happens. Instead of startup success, you will find the % of startup failures.

We tend to talk about bankruptcy, survival and success as being on the same spectrum (I did as well in the article above, see the image below).

But in reality, I think they are two different things all together and this means they are not on the same spectrum! The opposite of “being bankrupt” is “not being bankrupt” (which is not the same as successful!)

In this new setup bankruptcy is still easy to define: you either are, or you aren’t. It is a hygiene factor. It matters, of course it matters who goes bankrupt and who doesn’t. You need active startups in a startup ecosystem, so you should monitor how many of them go bankrupt. But it’s the starting point of the discussion, not the metric by which you want to assess success.

The problem, however, remains the success spectrum. The opposite of being successful is “not being successful” or “survival”, which is definitely not the same as being bankrupt!

On the left is survival, which everyone will probably agree upon in some way. But what’s on the right? What is everyone striving for? Perhaps you’re looking for startups with low valuations, which can survive endlessly without funding, you might want to put cockroaches on the right end. Perhaps you are a VC, looking for potential unicorns? Or Zebra’s? Or companies with a high value in the ecosystem (I searched, they do not have an animal named after them, yet).

What you put on the right end of your success spectrum depends a lot on your point of view on the ecosystem. It might be a high valuation (if you’re a VC), it might be a company with a high revenue (if you’re a university and you have a license fee on IP depending on the yearly revenue), it might be a company where the founders play a large role in the local ecosystem (if you’re an ecosystem support organization), it might be the office with the most people on board (if you’re a local municipality and you care about job growth).

There is a second way the decoupling of bankruptcy and success has an impact: if they are not on the same spectrum, it means they also have different drivers. You can not just do the opposite of what bankrupted startups did and expect to become successful! There is a lot of research done on failure rates and why startups fail at all ( see the same article), but spend some time on why startups become successful as well as you will need both points of view for a successful ecosystem!

This decoupling can be very clear in organisations where both a coaching team and an investment team is present (or an early stage team and a later stage team). The early stage team is often trying to make sure the startup survives. They are measuring progress, while not aiming for success, but aiming for “not going bankrupt”. Later stage teams are often more focused on the success spectrum (because the “bad startups” are already bankrupt? I don’t know..). Because the different teams have, often unconsciously, very different metrics by which they define success, they can look at the same startup, with the same founders, and the same history, and have very different ideas of the potential of the startup.

This can be very confusing for startups as well if not articulated in the right way. In the early stages you might have been advised to do X or Y, which resulted in you not going bankrupt (yay!). Then suddenly you are no longer advised to do more of the same which got you where you are, but you are advised to do A or B, which will make you “more successful”. Or even worse: you’re asked why you never did A or B in the first place! A kind reminder for founders: you are always working on two things: success and survival. They are not the same!

You probably get it by now: it is important that all actors involved understand that success is not the same as “not failing”, you should therefore discuss your definition of success, accept that it will be different for everyone involved, agree on a shared set of drivers for this success and monitor the progress of the startups accordingly!