Startup advice is a lucrative industry. Who wouldn’t want to know the elusive truths behind the most iconic startups?
For example, what’s the most important thing to startup success?
Here are some tasty morsels of advice that I’ve seen served many times:
For the seed stage startup, winning distribution is the most important thing, more important than making the best product.
For the seed stage investor, backing a great market is the most important thing, more important than backing great founders.
For the area of a rectangle, width is the most important thing, more important than length.
Just kidding. These three statements commit the same logical crime: oversimplifying causation.
For the area of a rectangle, both length & width are necessary but not sufficient conditions. Same goes for great markets vs great founders and for winning distribution vs winning product. Neither factor is “more” important. What’s the most important factor? Sadly, it doesn’t exist.
Startups are complex systems that display emergent behavior, like the weather. They aren’t simply the sum of their parts. Startup success has countless necessary conditions. None are by themselves sufficient. This means that there’s an infinite number of reasons why a startup can fail. It also means the founders and business models of the most successful startups undergo dramatic metamorphoses on their growth journey.
Take Benchling, the runaway leader in cloud software for R&D in the biotech & pharma industries that last raised capital at a $6.1b valuation. I met them in 2012 off of Angel List when they were raising a seed round:
Benchling had early traction among grad students performing synthetic biology experiments in academic labs. At the time, conventional wisdom held that student users were a dead end path for software revenue. Worse, pharma & biotech were highly allergic to the cloud, let alone paying for any third party software.
Meeting with the Benchling founders in Sep ‘12, they pitched the monetization potential of ecommerce. The idea was that users who were already designing & tracking experiments in their software would also use it to purchase reagents and other lab supplies, generating juicy commissions.
It was clear to me that the founders had received advice to pursue the ecommerce market opportunity. Since the TAM for lab supplies was far, far greater than the TAM for R&D software, this was great advice, right?
Fortunately for them, they eventually dropped ecommerce. They shifted to a bottom-up SaaS model. With end users loving their products, they had sufficient leverage to persuade pharma and biotech to pay for cloud software.
Unfortunately for me, I didn’t invest. After meeting with the founders, I was attempting to do due diligence on the market when the round closed. In my defense, at that time I was truly a novice investor. If I had invested, I’d probably have falsely attributed my luck to skill.1
Looking back, it’s tempting to ask: what was more important to Benchling’s success, the market or the founders? It was a very tough market. I don’t think it produced any other significant SaaS winners. So let’s give the credit to the founders, who were clearly exceptional.
On the other hand, it was such a tough market that relatively few startups pursued it. Especially considering how the past decade has seen an explosion in synthetic biology as technologies like gene editing have moved from fantasy to reality. Maybe the market was more important.
Wait a second. What about distribution?
After all, Benchling was the only funded startup pursuing a bottom-up strategy in that specific market at that time. So maybe the most important thing was their distribution strategy?
I suspect we would see a similar challenge in discerning causation if we look closely enough at the circumstances behind every great SaaS startup. The market must materialize. The founders must execute. Distribution must scale.
What’s the most important factor? All of them.
I probably would’ve gone on to blow my savings on boneheaded investments and then ended up destitute & alone. At least, that’s the story I tell myself so I can sleep well at night. But I digress.