The 3 Essential Criteria for a Successful Startup

Here's how investors recognize a successful startup right away.

The 3 Essential Criteria for a Successful Startup

What makes a successful startup? It's a big question, arguably with as many different answers as there are successful startups in the world, but looking across the playing field reveals a few important criteria that tend to set the long-lasting businesses apart from those that wither and fade away.

If you've set out upon the difficult path to becoming a successful entrepreneur, it'll significantly help your chances of achieving greatness if you can take a look around and observe how some of the most notable startups have created success for themselves.

In order to create a company that has the potential to scale to meet large demand, deliver meaningful value to the marketplace, and be an attractive investment opportunity for angels and VC's, seasoned entrepreneur and venture capitalist, Marc Andreessen shares that a startup must meet the following 3 criteria (and be truly outstanding in each area).

1. A Great Team.

Most experienced investors will tell you that a huge factor in making an investment, is having a profound confidence that the team behind the startup will be able to commit, navigate inevitable challenges and pivots, and see their idea through to market domination.

Ideas are cheap. Execution is where the real value lies in the world of business, and if your team doesn't show investors—right away—that you can execute on your grand vision, your idea will be dead in the water before you ever get close to launching.

Are the members of your founding team, complementary?

If you've got the sales acumen to knock down doors and sign on your company's first handful of customers, what are your teammates responsible for? If your product or service is technological by nature, you'll need at least one founder that's well-versed in web development, building apps, and creating the other components of your minimum viable product.

2. A Large Market Opportunity.

If you're seeking to tackle an idea that needs investor funding, there better be a massive, existing market of customers. From an investor perspective, they're looking years into the future, evaluating whether or not they're likely to get a healthy return on the money they give your startup. That means they need your company to either go public with an IPO (not very common) or be acquired by a company who sees value in bringing your business into theirs.

If there's not a healthy market of customers or businesses that'd be willing to pay for your product or service, their chances of getting a positive return on their investment (that they've in turn, promised to their institutional investors), or even just their principle investment back, will be slim.

What size market do investors look for? It completely depends on the type of business and industry you operate in, but make sure that your customer base is very narrowly defined. For a B2B SAAS company with an email marketing product aimed at small and medium-sized businesses, there's already a well-defined audience well into the millions, within the US alone.

3. An Incredibly Useful Product.

Is it realistic that your product or service can potentially make a huge splash in your industry?

If not, it's likely not a great candidate for seeking venture or angel funding. You may have more of a lifestyle business, that'd be better off self-funded or backed with a little debt financing.

If your product does have the potential to be bring about a fundamental technological or economic change to your potential customers, then you're on to something. In order to scale your startup into the millions (or billions) of customers, the product will need to be "10 times better, faster, or cheaper than what's on the market now."

Why? Because most people (aside from early adopters) are inherently resistant to change. There are switching costs of time, money, and mental effort, involved in transitioning into using a new product or service, especially in the B2B world.

In order to make a huge change within an industry, your product or service must be so useful that the majority of your target customers will proactively switch to your far superior solution.

 

Does your business idea, or startup meet all 3 of these criteria? If not, it may be time to make a big change.