What makes startups succeed or fail? This is a question we are intent on answering. We believe increasing the success rate of startups has the potential to dramatically increase economic growth all around the world. On May 28th, we released our first report at blog.compass.co. On August 29th we released our first benchmark application, the Startup Genome Compass to help startups reduce premature scaling.
The role of technology startups in our global economy has never been more important. Startups may seem insignificant compared to large multinational companies that have trillions of dollars of wealth sloshing around in public markets, but a recent Kauffman Foundation study found that the majority of job growth in the United States is driven by technology startups.
The power of information technology has been steadily increasing for the last three decades and has recently reached a level of maturity that has started to trigger a reorganization of the global economy. It has never been easier or cheaper to create a startup thanks to infrastructure like open source software, software as a service, cloud hosting, globally ubiquitous payment processing, viral distribution channels, real-time collaboration, on demand logistic services and hyper-targeted advertising.
As a result, the pace of change is speeding up and the implications of this are immense. Billion dollar startups are emerging faster and faster. The quick ascent of startups like Google, LinkedIn, Facebook, Twitter, Zynga and Groupon are harbingers of a major structural economic change on the horizon. The service sector has dominated the global economy for the last few decades but its sun will set. Just as machinery replaced most manual labor, software will replace repetitive intellectual tasks. Turbo Tax eliminated many accountants, Amazon eliminated many retail jobs and E-Trade eliminated the majority of stockbrokers. In the near future jobs that are more complex yet still methodical will also be replaced by software. Creative Commons is reducing the need for lawyers, Khan Academy shows how one good teacher can replace many bad teachers and the profession of doctors will be disrupted by startups like Halcyon Molecular that turn healthcare from emergency care into a preventative self-care. Balancing out that massive decrease in jobs will be what Richard Florida calls the rise of the creative class.
As the waves of disruption come ever faster, the only way for a company to be competitive will be to behave like a startup. In the landmark book the Innovator’s Dilemma, Clayton Christensen found large companies are excellent at sustaining innovation but by and large fail at disruptive innovation. Startups thrive on creating disruptive innovations. Recently, thought leaders in entrepreneurship have come to the conclusion that in order for large companies to be effective at disruptive innovation they need to make structural changes that make them behave nearly identically to startups.
The increasing economic importance of startups, along with decreased barriers to entry has caused interest in entrepreneurship to explode around the globe. New startup ecosystems are being built up all over the world with the hopes of replicating the success of Silicon Valley. Spearheading this movement are startup accelerators like Seedcamp, Techstars, Opinno, Founders Institute, 500 Startups, and Sandbox, but they are accompanied by hundreds of others. On an individual level, the brightest people worldwide, are increasingly seeing entrepreneurship as the career path of choice. The release of The Social Network has captured the imagination of today’s young people, and catapulted Mark Zuckerberg to the same status as Gordon Gekko in Wall Street almost 25 years ago.
But despite the increasing economic importance of scalable startups, we still don’t understand the patterns of successful creation. More than 90% of startups fail, due primarily to self-destruction rather than competition. For the less than 10% of startups that do succeed, most encounter several near death experiences along the way. Simply put, we just are not very good at creating startups yet.
Eight months ago we launched the Startup Genome Project, with the goal of increasing the success rate of startups and accelerating the pace of innovation around the world by turning entrepreneurship into a science. If successful, it’s hard to imagine the type of impact this could have.
Some of the world’s biggest transformations occurred when arts were turned into sciences. The scientific revolution in the 16th century triggered the age of enlightenment. The development of scientific management, which peaked in the early 1910’s, made large companies dramatically more efficient and arguably was one of the biggest causes of the explosion of wealth the world saw in the last century.
We believe the effects of cracking the code of innovation by turning entrepreneurship into a science will trigger a new era, that we are calling the Entrepreneurial Enlightenment. In the midst of the largest global depression in almost a century, a revolution in entrepreneurship could propel the world to a level of wealth never seen before by enabling scientific discoveries and technological breakthroughs to be integrated into the fabric of society faster than ever before. Offering hope that we may finally be able to master some of the most pressing challenges, including water, energy, food, health, security, poverty and education.
No revolution is triggered alone. In the quest to make entrepreneurship a science, we are standing on the shoulders of giants. In just the last 2-3 years the number of people extracting and codifying the informal learning of entrepreneurs has hit a point of critical mass. Steve Blank kicked off the move towards a science of entrepreneurship with his seminal book The Four Steps to the Epiphany. In the book, he introduced the concept of Customer Development. A few years later Eric Ries combined Customer Development with Agile Development and Lean Manufacturing principles to create the Lean Startup methodology. Interest in the Lean Startup has morphed into a global movement. Other major contributors to the science of entrepreneurship include Dave Mcclure on Metrics, Sean Ellis on Marketing, Alex Osterwalder on Business Models and Paul Graham with his essays.
Yet despite this huge knowledge base emerging about how startups work, startups have been able to absorb little more than the basic patterns of how to build a startup. Most founders don’t know what they should be focusing on and consequently dilute their focus or run in the wrong direction. They are regularly bombarded with advice that seems contradictory, which is often paralyzing. And while startups are now gathering way more qualitative and quantitative feedback than they were just a few years ago, their ability to interpret this data and use it to make better product and business decisions is sorely lacking. The primary cause of these problems is that we lack the necessary structure to synthesize our accumulated knowledge on the nature of startups. We are missing a common language and framework to describe and measure entrepreneurship and innovation.