When a recent article released the names of the startups we chose to invest in, some amusing commentary followed. Among some interesting thoughts, and some “we’ll see” contributors, were a range of negative rants and strangely emotional outbreaks.
The general sentiment was that we make “pathetic” decisions, the startups lack “real ideas”, and we are a team of “oompa loompas”, for not having chosen the startups they would have chosen. While this may all be true, and we don’t claim to have some psychic picking powers, there is some method (admittedly not much) behind the madness, and you may be surprised to hear that finding “innovative ideas” is not part of it.
From experience, real innovative solutions are not simply a new or cool concept, they are the result of delivering products and services in better ways as the startup turns into a business, matures, and listens to customers. They are not always ground-breaking, quite seldom receive awards and accolades, but invariably add substantial value to the everyday lives of its customers. There are many examples of companies or products that were not “first-movers” but went and did it better, and bigger. The iPhone, Google Search, Facebook, Youtube, and many more. All these business were copies, but executed well and have delivered immense customer value.
Our job is to find startups, where we think the founders have the tenacity and skills necessary to deliver that value, whatever it may be. Then we give them some cash and help to create, make money, and become big businesses, which will ultimately generate a return on our investment. So far the best indicator of startups that can do that is:
- Teams do it better than single founders
- Big problems with big markets are generally better than small ones
- Products or services with the potential to scale are better than ones that can’t
- Concepts are bad, products and services are better, customers and revenue is best
- Entrepreneurs that have experience and an All-in-win-or-die-trying attitude are better than mere talkers
If we get those parts right, all they need is some time and a lot of luck.