Tuesday, August 7, 2007

The jockey, the horse and the track

If you start a company, you will probably fail. The odds of failure (risk) increase proportionally with your ambitions (potential reward); the lower you set the bar, the less likely you’ll fail.

While failure is binary, success is subjective. To some, it’s creating a business that generates enough cash to make a living – hitting a single. To others, it’s building an organization that gainfully employs a team, does good/makes a contribution, and (since it’s a corporation and the purpose of the corporation is to make money) spits out enough greenbacks to make a good living, while building something with future value – legging out a double. To a small sliver of entrepreneurs, it’s about swinging for the fences.

Enough of the baseball metaphor; let’s analogize companies to horse racing. There are three key elements to winning a race: the jockey (the team), the horse (the product), and the racetrack (the market). You can’t race unless you have a jockey saddled to a horse and running on a track. All are antes.

Marc Andreessen knows a little about starting and investing in companies (not sure if he knows much about horseracing). He logically asserts there is an incredibly wide divergence of caliber and quality for the three core elements of each startup:

At any given startup, the team will range from outstanding to remarkably flawed; the product will range from a masterpiece of engineering to barely functional; and the market will range from booming to comatose.

And so you start to wonder -- what correlates the most to success -- team, product, or market? Or, more bluntly, what causes success? And, for those of us who are students of startup failure -- what's most dangerous: a bad team, a weak product, or a poor market?
Most people – including many professional investors and seasoned entrepreneurs – would bet on the jockey. A great team can imagineer and deliver a solution to a market with compelling needs. Those who wager on the product – after all, without a great product, the team and market are irrelevant! – can make a sage argument. And, what’s the value of a killer product and kick-ass team if the market’s too small or not palatable?

Andreessen cites former Benchmark Capital Partner Andy Rachleff’s Law of Startup Success:
The #1 company-killer is lack of market.
  • When a great team meets a lousy market, market wins.
  • When a lousy team meets a great market, market wins.
  • When a great team meets a great market, something special happens.
You can obviously screw up a great market -- and that has been done, and not infrequently -- but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure. Market matters most.
And, it’s probably the difference between racing in the Triple Crown or going out to pasture.

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