Why do some start-ups hit the jackpot while others go to the wall? It’s a classic, sixty-four-thousand dollar question that’s very difficult to answer. Dirk Freise and Martin Ostermayer – web pioneers, founders, and currently managing partners of the venture capital fund Shortcut Ventures – try to answer it nonetheless.
Success factor number one: Team, team, team
A lot of start-up teams see themselves as strong and highly motivated. That’s all very well, but it’s not enough. For a team to be good, every member has to fit in perfectly – and we mean every single one – from the founders and the interns right up to any logistics and service providers. A company is only as good as its weakest employee and partner.
Therefore, when recruiting, you should skip the good applicant and carry on looking until you find the very good one. And if an employee is a bad fit – whether the reasons are job-related or personal – then you need to be brave and decide to go your separate ways. It sounds harsh, but at the end of the day, it’s what’s best for both the company and the employee.
Even in engineering and IT – professions, as the stereotype goes, where employees are said to be uncommunicative – we never allowed our colleagues to be taciturn nerds. It’s essential to have a certain pleasure in communication, otherwise your company will end up with information silos, and that can be damaging. Good entrepreneurs and employees like to communicate and do it a lot – and they don’t shy away from putting forward their ideas and leaving themselves open to criticism.
So how do we spot
good founders? Above all by the level of honesty they show towards themselves and their business plan. If a start-up is on the wrong track, then bad teams will insist on spending even more time on an idea that isn’t working. And when they don’t achieve the success they had hoped for, they’ll blame someone else: those (stupid) customers, the (unfair) market, their (evil) competitors. That’s usually all just a pretext. Good teams, on the other hand, change their way of thinking, are innovative, mobilize their resources, and find solutions. We’ll come back to this in a moment.
You should skip the good applicant and carry on looking until you find the very good one.
Success factor number two: Know your values, cultivate your culture
Every company does things differently. There’s the classic engineering or IT oriented company that’s infatuated with quality and innovation. There’s the company that concentrates on sales and marketing, and the one that relies on creativity. And there are countless companies that are a mix of all of these. What’s crucial is that the culture of the company stems from this strategy. For example, if my products have to be leading tech, I need an engineering culture that allows for and promotes a lot of time-consuming research and development. If, on the other hand, I need particularly strong sales and distribution, then I have to create an environment with the freedoms and possibilities that enable this to flourish. You can literally design a company culture, but only if the company’s strategy and objectives are clear.
The founders are, of course, the transporters of this culture across the business. They set the tone and tempo, and the employees follow their example – for better or for worse. When we founded Handy.de and Blau.de, for example, we were united by certain values and ideas. Having our own assistant or outer offices was never even a consideration. We wanted proximity, fast lines of communication, and transparency – also in terms of how we used office space.
The earlier a company has a clear understanding of its values, the easier it is. Conversely, if there are too many different values, then things can get hairy. To name an example: at a start-up that we used to finance, there were some internal conflicts. Some of the founders were based in Berlin while others had their offices in Hamburg. This physical separation was an issue, but there were ways it could have been resolved. The decisive factor was that both groups had very different ideas about how they wanted to attract and approach customers. Berlin wanted to do it quick and dirty, along the lines of “the proof of the pudding is in the eating.” But in Hamburg, they thought that was an awful approach. “The target group is far too sensitive for rush jobs and quick fixes,” they said. In the end, this conflict led to the start-up breaking up.
Is writing down the values of a company a smart thing to do? Absolutely. And the clearer the mission statement turns out to be, the better. In the 1980s, Bill Gates coined the slogan “A desktop on every table” for Microsoft. This is a clear, inspiring vision that provides employees with a direction while allowing sufficient entrepreneurial freedom on an operative level.
The clearer the mission statement turns out to be, the better.
Success factor number three: Delegate responsibility, tolerate mistakes
“Ask for forgiveness, not for permission,” was what we always drummed into our employees at Handy.de and Blau.de, and we still think it’s a great maxim to have. We let people get on with their jobs and encouraged them to make their own decisions. Week-long decision-making processes are toxic for start-ups. Employees and companies must be able to grow together. Sure – mistakes are made along the way, but you learn from them. The only important thing is this: you mustn’t make the same mistake twice. Should that happen, then you have to ask whether there’s anything wrong on a structural level or if you have the right person doing the job. Either way, the motto “make a decision” is essential. A (young) company has to keep moving.
The bigger a company, the more difficult it is for founders to maintain a direct relationship with their employees. But it’s vital that they do so! Regular large or small meetings, meeting people for lunch, an open-door policy among the managers, even for interns: these are all stones in a mosaic that work towards keeping communication at the company lively and transparent. This kind of culture really pays off, especially during difficult times.
Ask for forgiveness, not for permission.
Success factor number four: Stay flexible and break the rules
Whenever founders realize things aren’t moving forward with their original business idea – that is to say there’s no path that leads straight ahead – then they have to veer out to the left or right. Sound banal? Well, it isn’t. Only with a large portion of creativity, courage, and power of judgment is it possible to change course. Most people lack at least one of these three characteristics. And that’s why a lot of people fail if things don’t go the way they were expecting.
The most difficult question to answer is this: How long should I hold on to my original business idea if the success I’m looking for does not materialize? Peter Thiel, a successful US investor and co-founder of PayPal, once answered this question by saying the following: if you’re waiting at baggage claim at the airport and everyone’s suitcase has arrived apart from yours, then it’s okay to wait a little bit longer – but not for hours or days!
With Blau.de, we were the ones waiting at the luggage belt. Part of our original plan was to sell cell phone contracts online at cheaper prices. We thought it was a great idea, but it didn’t work for a number of reasons. When demand and sales failed to materialize, we went for the most radical change of course imaginable and offered telephone cards offline at retail discounter checkouts, even though none of our competitors were doing that at the time. This about-face wasn’t at all easy, as we had totally fallen in love with the idea of a modern, elegant online sales model. In the end, however, the new sales channel was our savior and laid the foundation for the success of Blau.de.
Success factor number five: Monetize quickly
Money, revenue, profit: no start-up survives without them. And the quicker the financial success, the better. “Okay wise guys,” we hear you say. “What about Tesla, Twitter and Facebook? They needed an eternity to get anywhere financially, and some are still trying!” Well, we can say this: in Europe and Germany, it’s a completely different world than in
Silicon Valley. Here, venture capital investors aren’t so eager to provide funding. It has always been like that. The sooner we were registering sales and gross profits at Handy.de and Blau.de, the easier it was for us to demonstrate that the products were being accepted by the market and the company was able to work profitably. Quick monetization always served us well. It behaves like a good engine and is an enormous help during the second and third rounds of funding.
Quick monetization always served us well.
Success factor number six: Stay open-minded
Curious, open-minded, hungry, and astute: these are perhaps the biggest challenges for
entrepreneurs and investors. And, to be honest, the older you get, the more challenging it becomes. Let’s take Snapchat as an example: if we were investors and a group of founders suggested that to us as an idea, we would have sent them home! Once you’ve passed the age of 40, it becomes more difficult to recognize genuine and promising innovations early on and to judge their potential.
We had a similar situation with a company we co-finance – Mediakraft, a business that markets YouTube channels. At the beginning, we weren’t convinced at all that it would be successful. At the time, Dirk asked his nephews and they knew all the stars on YouTube. And some of them were also with Mediakraft. Then we knew that it could become something big. Understanding products and target groups is absolutely essential – and if your own nephews can help out now and again, then all the better. Just don’t hold back!
Image credits: 123rf/AnnaBizon, 123rf/wavebreakmedialtd, 123rf/rawpixel