What Are The 5 Rules You Need For A Successful Startup?

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My Mom sold houses in the San Fernando Valley area of Los Angeles. She started out by selling condominiums, then eventually graduated to selling estates.

I’ll say, from watching my Mom, that selling real estate is a seven day a week, 365 day a year, grind. It looks easy from the outside, but the successful real estate agents work like mad.

Yet for all the hard work, my Mom would always say about why one home sold and another home didn’t sell came down to the old saying, “Location, location, location.”

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Rule #1: Your choice of market is critical to your success.

Well, in the startup game, your market choice, that akin to location in real estate, is going to pretty important. If you choose the right market, then you could be off to the races. If you choose the wrong market, then you’re likely to have to pivot.

 

Rule #2: More important than your choice of market is how you will attack the market.

 

Clayton Christensen, the late author, of the start up bible, The Innovators Dilemma, had it so right. You almost have to think about building your startup in an upside down manner if you’re going to win.

When I say upside down, I mean that the obvious choice of going after the biggest market may end up in failure. Instead, you’re more likely to have success by going after the smaller, underserved subsegment of the market, that you can dominate.

Then, over time, you graduate, like my Mom did from selling condominiums to estates, to the larger segments of the market. You eliminate your larger, stronger competition by focusing on the smaller subsegments.

 

Rule #3: Most important of all. More important than your choice of market, and how you will attack the market, will be the team you choose to go to battle with.

 

Andy Rachleff, ex uber-successful venture capitalist, and now chairman of Wealthfront has a set of rules called Rachleff’s law. It goes like this:

  1. The #1 company-killer is lack of market.
  2. When a great team meets a lousy market, market wins.
  3. When a lousy team meets a great market, market wins.
  4. When a great team meets a great market, something special happens.

I agree with rule number 1, rule number 2, and rule number 4, but I don’t agree with rule number 3. In my experience the right rule number 3 is:

When a lousy team meets a great market, the lousy team will still fail.

It’s just not enough to go after a big opportunity with a great idea. There are plenty of other entrepreneurs that likely have the same great idea you do.

For example, I’ve been working with “Ray” to help him build his company for the last two years. He has an unbelievably clever idea to go after his market.

But Ray has, get this, 50, yes 50, direct competitors. There are 50 other startups directly competing with Ray, and some of these startups have over $100M in funding.

In a market like that, your great idea isn’t going to be worth much. Ray’s going to have to have flawless execution if he’s going to win. You don’t execute well unless you know what you’re doing.

But there’s one more thing you’re going to need need to succeed. That’s why I’ve added a rule number 5:

You need a great idea, a great team, and you need some luck if you’re going to win.

So now here’s my adjusted version of Rachleff’s law:

  1. The #1 company-killer is lack of market.
  2. When a great team meets a lousy market, market wins.
  3. When a lousy team meets a great market, the lousy team will still fail.
  4. When a great team meets a great market, something special happens.
  5. You need a great idea, a great team, and you need some luck if you’re going to win.

Rule #4: You’ll need to develop a great company culture if you’re going to fully harness your great team to achieve success.

 

Your company culture, more than the market you choose to focus on, or the team you recruit, is the most likely indicator of your future success. There’s one type of company culture, according to a study by Stanford University, that outperforms all the other types of company cultures.

That successful culture is called a commitment culture where, simply put, your employees never want to leave. You build that great company culture through the way you manage and the great team you hire.

 

Rule #5: Finally, you always need a little, no, strike that, a lot of luck.

 

It’s not enough to choose the right patch of real estate to go after. And it’s not enough to have the right team pursuing the right strategy, you’re going to need a healthy dose of luck if you’re going to win.

You can do everything right and still fail if you don’t have luck on your side. Your market choice, the team you choose, and the culture you build will give you the best chance of having luck on your side, so your startup succeeds.

 

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