The question of what drives startup success is a long-standing and ongoing debate in the venture capital industry. While many factors can influence the outcome of a new company, it's generally agreed that three elements are particularly important:
While the approach is straightforward, it creates two questions. Which of these factors plays the biggest role in determining a startup's success? And when is one of the elements more important than the others?
Some venture capitalists argue that the market (the track) is the most critical factor. They suggest that even the most innovative idea or visionary leadership will struggle to make an impact if there isn't significant demand for the product or service. In that view, startups need to identify a market with a large and growing addressable customer base, ideally one that's experiencing some kind of disruption or change that creates new opportunities.
On the other hand, there are other VCs who believe that a great idea or business model (the jockey) is paramount. This camp argues that even if the market isn't yet receptive to a new product or service, a truly innovative and compelling concept can create its own demand. As it does, it can shift consumer behavior and open new opportunities. They also point out that a well-executed idea can improve existing products or services, creating more value for customers and ultimately driving market adoption.
Finally, there are those who prioritize the leadership qualities of a founder or management team (the horse) as the key driver of success. In their view, a strong and experienced leader can navigate the challenges of building a new company and also inspire and motivate the team to achieve great things. They suggest that a founder with a proven track record of success, particularly in the same industry or vertical, is particularly valuable. These people not only bring leadership skills but also valuable industry knowledge and networks.
“Over time, startup success will be determined by three factors – the market a company is going after (the ‘track’), the quality of the company’s business model (the ‘jockey’), and the quality of the company’s leadership team (the ‘horse’). Throughout the life cycle of a startup, a high-quality track, horse, and jockey will all be necessary for significant venture success.” (Mark Buffington, Managing Director)
In the early stages of a startup’s life, identifying a great market (track) is the defining factor of success. No amount of founder willpower, business model adjustments, or investor capital will overcome market indifference to a product or service. That said, once a company gets off to a strong start, the need for an enduring, high-quality business model and leadership team increases rapidly. Success attracts competition. Competition means that companies must adjust and refine their value propositions to maintain a competitive advantage.
In other words, early success is usually fleeting, especially in developed economies where competition is intense.
Empirical data supports this viewpoint. Very few companies can maintain high revenue growth for long periods of time. It might be because they are facing market saturation (due to a limited addressable market) or because competition causes lower win rates and reduced pricing power.
That’s why, from the early stages of a company’s life, we begin assisting our founder-partners to develop durable competitive advantages. These are the kinds of advantages that persist through time, regardless of the challenges a company faces. Building advantaged business models – a collection of product, pricing, and go-to-market strategies – requires leadership.
Ultimately, successful startups are those that bring together the track, jockey, and horse in a winning combination. They identify a market opportunity that's attractive and growing. They develop a strong value proposition and business model that meets the needs of that market. And they build a talented and experienced leadership team that can execute on that vision.
While there may be some disagreement about which of the three factors is most important – and when they are most important – it's clear that all three are critical components of startup success through time.
What combination of Track, Jockey, and Horse do you think unlocks the greatest capacity for startup success?
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