Being a founder is never easy, and today it might be harder than ever. Competition for capital is fierce and entrepreneurs are being asked to do more with less. However, companies usually are not simply at the mercy of the business cycle. They can channel and change the pressures to which they need to adapt, and even turn these same forces into catalysts for growth.
For the best entrepreneurs, the pressure to survive can speed up and reward. When you look beneath the superficial darkness, you may see that the global startup ecosystem is on the brink of a once-in-a-generation technological tipping point.
Three aspects are converging to present founders more power than ever before to create outstanding companies. First, startups now profit from a long time of knowledge amassed on key topics comparable to hiring, development and team constructing. Second, a global pool of diverse experts and mentors has accelerated the feedback loop and talent development. Finally, powerful new technologies have lowered the barriers to entry while enabling small teams to attain above-average results.
First, amassed knowledge. In our just published book Scaling through chaos, Index Ventures created and analyzed a dataset of over 200,000 founder and worker profession profiles over 15 years from 200 of the most successful technology companies ever founded, including Airbnb, Figma and Stripe. It’s the most extensive study ever conducted on how enterprise-backed startups construct their teams, and it revealed some surprising findings.
One key insight is that a point of chaos is a feature, not a bug, of high-growth companies. Our data shows that successful startups are inclined to double their worker numbers yearly after finding product market fit, which usually equates to 125-1,000 employees. This means that at any given time, half of all employees could have been with the company for lower than a yr, which in turn creates enormous organizational stress. Trying to eliminate it will be futile. What you wish is to seek out a temporary balance that means that you can surf the edge of chaos while having enough structure to remain upright.
The second insight is that it is vital to avoid over-indexing loyalty because company needs change with scale. This starts to be most acute in the “neglected middle”, above 125 employees, as you progress from a thriving startup employing specialists to a startup with more structure and specialization. As a result, you may expect about five to 6 of your ten previous hires to stay below the 50-worker threshold, drop to 3 at 250, and only two to 3 as you cross the 1,000-worker threshold.
All of this goes to indicate that the founders have spent the last thirty years experimenting, iterating, and developing best practices in hiring, scaling, and executing. But due to the wealth of information we now have, entrepreneurs have encyclopedic manuals on every thing from finding product-market fit to growth hacking to creating high-performance structures. Founders now not should set first principles themselves, but can rely on real evidence. Instead of reinventing every wheel, they will focus on the 20% specific to their startup.
Secondly, there are people. It is estimated that there are over 150,000 VC-backed startups around the world. Startup demographic report– with roughly 200 of them reaching a valuation of $1 billion per yr. Former operators, angel entrepreneurs and enterprise capitalists are not any longer confined to the US West Coast, but will be present in downtowns in most major cities around the world and come from increasingly diverse backgrounds. In a sign of the spread of innovation, Index itself has invested in over 100 cities. The pooling knowledge of tens of millions of more experienced builders creates ever-faster feedback loops, triggers a talent and business flywheel effect, and results in more inclusive and imaginative startup ecosystems.
Finally, there is technology. Lots of hype about (A)I AI representing a unique platform change. But in a sense, this frame is a tree that hides the forest. Rather, we’re at a technological inflection point where cloud, mobile, chip manufacturing, and artificial intelligence are coming together to mutually enhance adoption – lowering barriers to new business creation, accelerating company growth, and opening up entirely new industries to the forces of innovation. Our evaluation shows that it took over eight years to grow the company from zero to 500 employees. Now only five are needed, and we expect the speed of scaling to speed up much more.
Meanwhile, global distribution infrastructure has also grow to be commoditized, allowing developers to focus more on unique solutions slightly than technical plumbing. Democratic access to powerful tools, highly scalable infrastructure, and APIs enables small teams to attain success in ways unimaginable even 10 years ago. But despite these changes, having technical DNA on your early team has never been more vital to assist them gain a bonus and seize opportunities: our evaluation shows that almost 80% of successful companies had a founding CTO or CTO.
We at the moment are at an inflection point where knowledge, people and technology are coming together, having complex, exponential impacts and transforming the entrepreneurial ecosystem. The message is clear: the ingredients for fulfillment have never been more plentiful, and it’s as much as brave innovators to mix them in creative ways. Yes, it is almost unattainable to alter the broader economy alone. But you may decide to be carried along by the current or to channel the turbulence and thrive.
Martin Mignot is a partner at Index Ventures.
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