As a business that sees hundreds of entrepreneurs and startups every year we have started to develop that kind of sixth sense for what works and what doesn’t. Apart from all the prospect and client startups we see every year we have also had several of our own businesses. We currently have a significant stake in five early-stage businesses and are negotiating a sixth. A few weeks ago we discussed how our little web design business has become the ideal startup incubator and listed some of the success factors we’ve experienced. If we turn the spotlight on the people that run those successful businesses for us we see some patterns too.
Here are the key success factors that we look for in both our client’s and our own investments:
- Ability to adapt to changes. As long as there is a sun in the sky there will be changes to deal with. No market ever stays the same and no leader can expect to use the same strategies to succeed year after year. In the businesses we have started or funded we look for CEO’s and founding teams that are very uncomfortable with stasis. They are always asking, “how can we make this better, smarter, leaner, etc.?” The ability to adapt is the number one asset for a startup leader as the business navigates through some pretty nasty waters in the beginning.
- A founder with skin in the game. I’d like to be proven wrong but it’s near impossible to find a successful business that doesn’t have a founder (or founders) with a good amount of their own skin in the business. Salaried leadership isn’t going to ever be a good idea when you’re trying to extract the best out of a business. Earning your way to success makes you so much more valuable as a leader than having the reigns handed to you. All our business CEO’s have a significant stake from the beginning.
- Growth is not a measure of success, profits are. We’ve seen a lot of businesses grow through acquisition but still fail to deliver profits. As surprising as it may seem to most people, there is almost no research or market evidence to show that growth is correlated with shareholder returns. Staying small and growing organically is a safer and smarter way to build profits and returns. In our businesses we look for asset-light structures with small teams that have a product or service model that can scale quickly without adding more people.
Our 3,500 sq ft office supports two of our business, Fresh Tilled Soil and Web-o-Matic. As we grow we make a conscious decision to keep the teams small and productive.