Attributes of a Successful Startup
A good idea does not necessarily result in a good product. A good product does not necessarily result in a successful company.
To succeed, a company needs more than a good idea. Its success is largely due to how the idea is executed and whether it addresses a real market need. A talented staff and management team can ensure that the right decisions are made along the way. Capital is also essential to make everything come together and push the venture ahead. In order for a business to succeed in the long term, it should be able to scale up. One way to scale is to design not one but a pipeline of products. Below, some of the essential criteria that lead to a successful business are listed.
Innovative products, innovative services
Startups should be based on innovative services or products that bring unique value to the customer. Academic discoveries, however, are usually embryonic concepts and not fully developed products, often making it difficult to determine the real value of such discoveries in the marketplace right away. Nonetheless, startups should take steps to secure intellectual property rights associated with core technology associated with services or products as soon as possible, to help create and preserve value in the company.
There is no requirement to have intellectual property rights to start a company, but protecting intellectual property that is key to the business is an essential element of the commercialization process. Holding intellectual property rights in technology serves as a barrier to entry against competing companies that might want to replicate a startup’s product. For this reason, the majority of investors usually prefer that the core technology is protected. For example, in the case of a patent, technology that is protected can help give the startup an edge over competitors because once a patent issues, the startup can prevent others from making, using, or selling a product that is claimed in their issued patent.
Some academic companies are founded on intellectual material that lies within the public domain and for which no intellectual property protection is available. If this is the case, there may not be a need to secure a license from the academic employer. Companies without intellectual property assets ordinarily do not attract large amounts of outside investment capital, however.
Modest-investment companies do not need intellectual property in order to get off the ground. Most often, the importance of intellectual property to becomes apparent later on, when the company sells the product or service and knock-off competitors arise. Strong intellectual property protection helps a young company to put its stake in the ground and gives the company a way to defend their market position against those who may try and copy their products.
The management team will have to decide what sort of intellectual property protection is needed based on the market for their product and relative cost to secure the rights compared with the ability to recoup those costs. Some intellectual property rights are expensive to secure, like patents, and others are relatively inexpensive, like copyrights. Trademarks are another way a company can begin to create value when customers associate the trademark or ‘brand’ with their products or services. Where a company may have know-how or information that would be better kept behind closed doors, maintaining trade secrets is another way to build value for the company in the form of intellectual property. Many times, there are opportunities to use different protection strategies at the same time. For example, a product brand name might be protected by a registered trademark, and the product itself may also be protected by securing patent rights in the underlying technology.
Discoveries that could lead to multiple products or product lines, or “platform technologies,” are what many investors look for when funding a startup. Often, investors ask, “Is it a product or a company?” - implying that single-product ideas (also referred as “one-pony shows”) are not suitable for the formation of an equity-investment company. One can certainly start a new business around a single product, but it is unlikely that the company will be attractive to institutional investors unless the product represents a very large market opportunity. For these cases, the inventor might want to consider licensing the product for further development to one or more established companies, rather than creating a startup.
Deciding on the company’s first product is often very difficult—especially for platform technologies, which may have many different applications. An important criterion is that it serve real-world needs. Individuals starting companies must provide compelling answers to questions such as: What market does this product serve? What products are already in this market? How is this product different from those? Who are the competitors, and how are their products better or weaker than yours?
Perhaps the most common reason for a startup to fail is lack of adequate management and governance structure. Early stage technologies will invariably encounter many hurdles before they reach commercialization. Being able to manage the hurdles and raise capital while building a motivated team requires experience, a sophisticated network and unique business talents.
Academic startups often have limited access to space and facilities. Northwestern researchers often find space outside the Evanston campus in places such as the Illinois Science and Technology Park in Skokie. Read facilities available to Northwestern entreprenures.
A startup’s demand for cash depends on the costs to take the product to market. The faculty member creating a modest-investment company in his or her garage, funded by personal savings, does not need to seek investment capital from business “angels” (wealthy private investors) and venture capitalists. In contrast, the researcher who plans to start a new pharmaceutical company will spend countless hours trying to secure large amounts of investment capital. Once the company is started and the initial capital is secured, founders will immediately start planning when and how to secure the next “round” of financing. Such firms are voracious in their appetite for cash, so raising money is a never-ending process, they are at the mercy of the investment community. The decision on how much money to raise is largely dependent on the timeline to launch and the nature of the product. While the desire to preserve ownership and control of the venture through modest-investment is understandable, many commercial opportunities require extensive partnering, both in investment and strategy, if they are to be successful.