A Silicon Valley research and development project to identify the common traits of internet start-ups has named four discrete stages of early development.
Bjoern Lasse Herrmann, Max Marmer and Ertan Dogrultan began the Startup Genome project in 2011. Like most ideas that originate in Silicon Valley, the project has turned into a business – Startup Compass – which is a benchmarking tool that company founders can use to check their progress. Speaking at “DNA of a Start-up”, held in Sydney last week as part of the Vivid Ideas festival, Herrmann told investors and entrepreneurs that to measure a start-up’s performance it was imperative to know where they sat in the “start-up lifecycle”.
According to the responses of 650 start-ups, the Startup Genome project found that entrepreneurs spend on average about seven months in the first stage: “discovery”. In this stage founders decide whether they are solving a meaningful problem and whether customers would be interested in their solution.
The “validation” stage is where founders should get confirmation that customers are interested in their product “through the exchange of money or attention”, which usually takes three to five months. Following this, founders work through an “efficiency” stage of five to six months when they improve their customer acquisition process before they move on to the “scale” stage. Herrmann says investors should wait until a start-up has passed the “efficiency” stage before parting with cash.
He says the Startup Genome founders were inspired by social media game developer Zynga, which has a team of 40 analysts that can quickly benchmark a new game against huge data sets it has collected from about 55 million users. “We thought, ‘What if we could do something similar for all of these start-ups out there? Give them a comparative data set to make sense of the signals that they’re getting from the market?’ ”