From my point of view there are three kinds of successful start-up software companies. The first are those with a grand vision to disrupt an entire category and radically improve a line of business. These are few and far between but are capable of raising a lot of money, innovating dramatically and having a massive impact. These are the kinds of companies you tend to dream of being attached to: the unicorns of the space, capable of having successful exits via IPO.
The second kind of company is the one that identified a better mousetrap and set out to build it. They aren’t changing the world, but they are improving the way a specific business is done. They can typically raise a solid amount of money to achieve their goals. These are more iterative in terms of their innovation and their success is typically measured by an acquisition by a larger company who either was looking to expand into that category or who was the previous leader in that category and decided to acquire the path to innovation and growth rather than funding the development of the path on their own.
The third kind of successful company is the “feature-led” company. These are the ones who set out to build something that solves a problem by plugging into a larger solution, even though they rarely admit they are a feature and they tend to think of themselves as an entire product. These companies have trouble raising money, and the most successful outcome for them is a small acquisition or in some cases an acqui-hire, where they get purchased for a team so they can continue to build in a larger organization and push the full product suite further.
This last kind of company is hard to gauge because in many cases the founders think they have a grand vision, but the outside world can be more cynical and simply sees they are part of a larger whole. There’s nothing wrong with being a feature-led company and understanding the end game for your offering.
In many cases, the people who founded a company are ego-driven when they build their business, but ego can get in the way of clearly understanding what needs to be done. There are a ton of successful entrepreneurs who build features and sell them to larger organizations time and time again. The challenge I see is too many founders can’t accept this point of view and they continue to push unrealistically towards a perception of their company as something that it can’t be. That creates problems.
Founders need to do their homework and talk to customers to see how their products are being used in the real world. Is your product being used in conjunction with something else? Does it provide the solution to a challenge that has a codependence on another, separate type of software solution?
On the flip side, is your technology defensible? Is the bar for someone else to create the same product high enough to maintain your position in the marketplace? Can a larger product company create a competitive solution that fits into theirs in a short time period by poaching developers with the same skill set? Can they even poach your team?
Being self-aware is never easy, but being self-aware as a company owner is a requirement for success. You have to be asking these questions in order to understand where you fit in the ecosystem. The best founders are the ones who know clearly where they sit and are driving toward an attainable goal.
I mentioned three types of successful companies above, but there is a fourth type of company: the one that raises too much money and never has a successful outcome. That’s not the kind of company you want to be working for, but there are a million of those companies in the world today, and more are created every day.
Being in a start-up is not easy. Many of them pivot so often that they have trouble defining who they are — but the right kinds of founder, and the focus on a realistic end state, are key to success.