I tried early-stage venture capital a while back and I couldn’t get a feel for it. I didn’t see how people could identify successful companies that early. Honestly, I was skeptical that they could.
We recently hit a milestone at Tacklebox, the accelerator I run. Over 100 pre-product, idea-stage founders having come through the program over its three years in existence. A bunch are successful, a few are on their way to becoming really successful, and a few interesting trends have emerged across the board. All the top performers, without exception, share these four characteristics:
- They have a clear purpose, not just a product.
- They can visualize a great outcome for their customers.
- They run tests to maniacally collect data.
- They then leverage those data points to make trackable decisions.
I know, none of this sounds particularly earth-shattering. But the combination of all four criteria is rare, especially in early-stage companies. Only a tiny percentage of our founders have nailed each of them, and they’re all running promising startups. The reason this four-part checklist is so powerful is because it gives founders a process for making decisions during the period in a startup’s life cycle when any form of process tends to be lacking.
Indeed, being an early-stage founder more often feels like being in a rowboat in the middle of the ocean in the dead of night. You’re paddling, but you’ve got no idea whether you’re headed in the right direction. The journey from “no one cares about your product” to “lots of people care a lot about your product” is extremely unpredictable, with no guarantees that you’ll get there. Seth Godin calls this entrepreneurial right of passage “The Dip,” and it’s during this period when lots of founders quit. Not because they lack motivation, but because the decisions they make lack context.
Gathering enough feedback on the decisions you’re making before you’ve developed a (somewhat) mature product is tough. Everything feels ambiguous. There are no obvious right choices. Building a process that can help you cut through this ambiguity is absolutely critical, and your ability to do that largely predicts your future success.
Back to that checklist.
1. Purpose before product
The first question I ask founders applying to Tacklebox is straightforward: “Why are you working on this?” The majority of founders I meet are product-focused. Their startup idea popped into their head as a fully fleshed-out product, and they’re looking for resources to build that product. So maybe they answer me with something like, “I want to build the Warby Parker for candles.” This is trouble.
There are few constants in the startup world, but one is that the first product you build will stink and no one will want it. Customers will be indifferent to the first candle release. Product-focused founders tend to react to customer indifference by doubling down on product. They add features or pivot to B2B, or B2B2C, or any other combination of letters that might remove that darned candle middleman, convinced that the candle itself is great, but the model for delivering it to the candle-loving masses is the real problem. They’ll push their product idea until they’re out of patience or resources, whichever comes first.
Customer-focused founders answer my question differently. “I want to help incredibly successful women establish lasting wellness routines so they can continue their impressive trajectories in a healthy way.” This is the purpose behind an actual recent Tacklebox founder, Ilse. I don’t know if she’ll be successful ( she’s still very early in the process ), but she finds this customer problem extremely motivating; solving it is the purpose behind the company itself, called Habit House. Customer-focused founders like her tend to react to indifference by rethinking their products. Dead-set on helping their customer, they’ll gladly scrap a product or service that doesn’t measure up and try to develop one that does.
I’m yet to see a product-focused founder succeed. I’m sure it’s happened, but not at Tacklebox. I’d only suggest starting a company if you’re motivated by the purpose behind it.
2. Easy-to-visualize customer outcomes
Humans stink at new things, but we’re great at things we’ve done before. This is why building a process for making decisions is so critical early on. Ideally, the decisions you make need to be based on data you get from your customers, and that data is usually in short supply for early-stage companies.
Successful founders handle this challenge by making every interaction with the limited customers they do have really count. The goal is to have a repeatable decision-making process on the basis of those interactions. For example, when I ask Ilse what her goals are for the next week (not the next quarter or the next year!), her answer might be “get 20 new users.” When I ask why, she’ll say, “So I can test the best way to get them to exercise three times this week.” Ilse knows what a five-star (hell, seven-star) experience looks like for her customers, and she’s working on getting them to that point right away. Working out three times a week is an amazing outcome for somebody who’s using Ilse’s product in order to improve their current once-a-week exercise regimen.
And for founders like Ilse, focusing on specific, achievable outcomes like these makes the daunting startup process feel more manageable. If I asked you to talk to a cutie in your yoga class, you’d probably feel stressed and delay it for weeks. Worse, it would take up a ton of headspace, and you’d stink at yoga until you got up the nerve to do it. (Maybe I’m just projecting.) But if I asked you to talk to that yoga cutie because 10 years from now you want to be partnered with kids, and speaking to people with similar interests is the best way to eventually get there, that first conversation would be a lot easier.
3. Constant testing
Ilse is constantly setting up and running tests to understand her customers’ behavior. She’s trying to get them to go from a single weekly workout to three–which is something they claim to want to do as well. Ilse’s hypothesis is that having her customers schedule their workout times for the week each Sunday will create some accountability, so that’s when the company sends check-in texts.
Just monitoring their workout habits isn’t nearly enough, though. Ilse also schedules five-minute calls with each customer on Sundays to understand how they’re feeling: Is this workout schedule sustainable? What are they sacrificing? How do they feel? If Ilse’s goal for her customers is improving their wellness, she needs qualitative and quantitative data.
Ultimately, the most successful founders are maniacal about gathering data right from the outset, knowing they won’t be able to translate those ideal customer outcomes into achievable goals any other way. Every interaction is a piece of this larger puzzle, and constant testing is the way it gets assembled.
4. Trackable, data-driven decisions
Ilse will use the results of this Sunday-based test to decide on features. But she’ll also test a bunch of different methods to deliver the same result. She’s got an extensive CRM in Airtable tracking customer interactions that help her make decisions.
Ilse works on her startup rather than in it , building systems that will help her understand how to best serve her customers. These systems get her valuable data while freeing up her time to think critically and creatively about those customers. That’s crucial, because startups are mentally exhausting, and founders need processes for taking some of that pressure off by reframing success. And for Ilse, success isn’t if all 20 people work out out three times in a week. It’s if, through gathering good data, she’s able to understand how and why they do or don’t, and what actually gets them to exercise. Seen that way, every test is a success, because the goal is data. Replacing failure with learning may be the biggest reason successful founders are able to navigate The Dip so well.
So, can you actually predict whether a startup will succeed in the super-early stages of their existence? I’m still skeptical. But if you can identify a founder that’s built a decision-making process by checking off all four criteria above, they’ve got a big leg up. Every action they take gets amplified, which helps them build for the present and the future. They’ll be stronger mentally, and if they can gather data from customers and make evidence-based product decisions lightning-fast, a product with traction probably isn’t far behind.