If you are an entrepreneur seeking a moment of clarity, there is no better place to start than Sequoia Capital’s Elements of Sustainable Companies.
It’s not new - these are the principles that have driven Sequoia’s investment strategies for decades. But today, with troubled financial markets beginning to spread cancer-like into Silicon Valley and venture capitalists starting to pull back from two plus years of carefree spending, startups have little wiggle room for error. This list is a beacon to help guide startups through their most common early mistakes.
We were reminded of the list recently when one of our interns, Bryan Scott, wrote an article talking about how important those ideas are to him. I informally polled some of my entrepreneur friends yesterday and today and was surprised at how few of them had read the list.
These principles are not for every new business, but they are certainly the key drivers of success for any startup looking for venture capital to drive growth. I’ve talked about some of these ideas in past posts, but nothing hits home quite as powerfully as a simple list, written by the venture firm that funded startups like Apple, Google, Yahoo, Cisco Systems, Oracle, PayPal and YouTube. Being able to put a check mark next to each item below certainly doesn’t ensure success. But ignoring them is a sure way to fail.
I consider this essential reading for any aspiring entrepreneur, along with The Man In The Arena.
Elements of Sustainable Companies
Start-ups with these characteristics often foretells the success of a business and the likelihood of it becoming a sustainable, enduring company. We like to partner with companies that have:
Clarity of Purpose
Summarize the company’s business on the back of a business card.
Large Markets
Address existing markets poised for rapid growth or change. A market on the path to a $1B potential allows for error and time for real margins to develop.
Rich Customers
Target customers who will move fast and pay a premium for a unique offering.
Focus
Customers will only buy a simple product with a singular value proposition.
Pain Killers
Pick the one thing that is of burning importance to the customer then delight them with a compelling solution.Think Differently
Constantly challenge conventional wisdom. Take the contrarian route. Create novel solutions. Outwit the competition.Team DNA
A company’s DNA is set in the first 90 days. All team members are the smartest or most clever in their domain. “A” level founders attract an “A” level team.Agility
Stealth and speed will usually help beat-out large companies.Frugality
Focus spending on what’s critical. Spend only on the priorities and maximize profitability.Inferno
Start with only a little money. It forces discipline and focus. A huge market with customers yearning for a product developed by great engineers requires very little firepower.
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Thank you for this, I have printed it off and will keep it as a reference!
what does little money means for them
Too bad Sequoia does nt have European offices…
‘Customers will only buy a simple product with a singular value proposition.’
I can’t remember the last thing I bought that was a simple product with a singular value proposition: technology and airline tickets are the worst offenders.
This list is 100% dead on! I don’t think every bullet needs to be true for you to have a viable business but once you start crossing off several of these it’s time to go back to the drawing board.
Steve Shapiro
http://www.digsby.com
Any blogs funded by Sequoia by the way?
johnyzar - sugar, inc.
Michael- they are everywhere why not in Europe?
thanks for the reminder read : good 4am √ ah’
It’s time for Sequoia to come to Japan and have a look at our innovative web companies over here-especially in the mobile area!
BTW
The Facebook link (to Bryan’s article) is “dead”/can’t be viewed by me.
@johnyzar you have a good point, they should be in london at least.
from their site
For seed and early stages it is helpful if the company is close to our offices in the U.S., China, India or Israel since these sorts of companies require very frequent contact. Growth stage companies are another matter and we are more than happy to invest in whatever places the founders and managements of these more mature companies have chosen for themselves.
There’s clearly a lot of wisdom there, but I would take issue with just one of these points:
“Rich Customers: Target customers who will move fast and pay a premium for a unique offering.”
Of course it’s great to build a product or service for which you can charge a premium, but don’t forget that 4bn people on this planet live in poverty. There is enormous potential to help these people, via the vehicle of capitalism, to meet their most basic needs.
“Pick the one thing that is of burning importance to the customer then delight them with a compelling solution.”
How about clean water; food; shelter; medicine? If you don’t have these things I imagine you’d be fairly delighted with a solution that you could afford! You can’t charge a premium, but the market is enormous.
Here’s a fantastic example:
http://www.worldchanging.com/archives/004389.html
@11 Those guys are in every technology field and they have the best connections. Even they provide infrastructure and offices for your start up. These are very important for start-ups. At least if i had these resources i could become better, bigger faster…
What i get from their page is that every European Start-up should follow Loic’s way and move to SF?
We actually have that hanging on our wall at Ormigo
Sure it’s easy to say these things in retrospect…
and I believe All companies practice these in varying degrees, much more so for the VC-funded projects
yet some, Most still fail…why, hmmmm
>Rich Customers — hmmm.. how does Google make money?
Any idea, at what stage or position they expect a start-up to be before they decide to fund you? Or possibilities are end-lees?
I’m not convinced that “all team members are the smartest or most clever in their domain”. I’m sure many of the most successful companies built their teams on whoever happened to be available at the time. These people passed certain minimum (and high) requirements but then rose as their organisations rose. I just don’t believe there is a way for a startup to find the “smartest and most clever” (and who is available) in the time they have and with the resources they have. “Smart” and “clever” is good enough.
A very good list from my point of view! But it still is only a guideline and not a law. Even the apples, googles, yahoos of this world do not fit in every point!
All valid points.
Now if only we had some good VCs here in Australia who would back winning startups…
We have a winning service for which there is huge (and proven) demand and from which we will derive considerable revenue (not ad supported either). Unfortunately all the VCs we have met with only consider investing once the company is operating.
Thankfully we have managed to raise a few hundred k from individual investors which will see us to the soft launch, but we have been lucky in that respect.
“>Rich Customers — hmmm.. how does Google make money?” — 113.com
Euhhm, Google also makes money from rich customers! The google users aren’t google’s customers. It’s the adwords buyers that are google’s customers!
Most of them are businesses with reasonably big budgets to spend on advertising. Our company is paying google $.50 for every click that leads to our website (on some specific keywords).
It appears the link to the original article is dead since you must login to Facebook (and be my friend too?). Here is a working link: http://www.jbryanscott.com/sequoia.html
@Johnyzar well I get the feeling that the only way to go with a startup is to move to the US and aim for SF.
Beautiful. Sequoia was the first company I pitched to two years ago when I had the idea for Mint.com. I read this list, and their guidelines on an effective pitch deck a dozen times when I was starting out.
These are timeless principles…don’t be fooled into thinking that somehow the nature of business has fundamentally changed with Web 2.0 or the internet in general. Solve a real problem, attack a big market, innovate and work like mad to make a profit.
Aaron Patzer
Founder & CEO, Mint.com
So what I’m doing wrong marketing my website
YouYap.com
I’m not sure why web finance bloggers have forgotten the single most important factor of a WEB application/site…. it not revenue, look at youtube… it’s clearly not having focus and solving a simple problem, look at facebook… it’s not about having rich customers, look at google… the single most important factor then, now, and always will be the users… are the users at your site? If so, you’re going to have people coming to you with money, forget the pitch… put your efforts into building a great application and catering to the needs of your users. The rest will fall into place…. honestly, there are rough times ahead… if your app can’t stand on it’s own two feet then all the money in the world wont fix your bad idea.
@# 25….. joking, right? not only is it really ugly but it’s despicable the way you steal peoples content…. what are you doing wrong “marketing???” from the looks of it, you don’t have a “marketing” budget… i’m gonna go ahead and say the $7 a month you spend on hosting is probably over-budget as is…. awful site… go get a job and leave this web thing to the rest of us…
We’re Sequoia- backed and I hadn’t read this before but can tell you that these points resonate beyond a mission statement in a drawer–the Sequoia folks live these principles. There’s a reason they call themselves the entrepreneurs behind the entrepreneurs.
I could not agree more with all of these. I wrote a blog post a while back that complements these:
http://www.fabianschonholz.com.....itability/
I don’t think this rules works all the time. What about craigslist? This is a company that didn’t follow any of these commandment and still succesfull. I have seen this site grow slowly. I just think with time your website will grow. It like real estate, with time the value will go up.
Hope to do same with my website:
YouYap.com
I am going to disagree. I have worked for some of the folks they have funded and those people were insane…
the “rich customers” one is dumb. most web (or otherwise) companies operate without the need for rich customers.
Good stuff Techcrunch.
YouYap.com - your website looks like nothing more than a vbulletin forum with articles stolen from other sites (like this exact techcrunch post, ironically). Yes, I saw the couple of stupid sounding articles that you wrote yourself.
Thanks for the word of encouragement. Thats what i need now
This is a great list from Sequoia, and applies at just about any point in time.
One item to consider: if a company is actually able to meet all these bullet points, the need for funding would be heavily diminished (the business would take care of itself.)
Great advice, though.
I’m convinced youyap is someone playing a prank on us…
While I was familiar with a lot of the concepts, it’s a nice reminder to have it laid out right in front of you.
I printed a copy so I’ll be reminded the next time we’re needing to focus.
Thanks!
Most people who’ve spent any time at B-school are probably rolling their eyes at this list, since it’s basically entrepreneurship 101. I also wonder how VCs reconcile their inevitable parachuting in of management with the “Company DNA is formed in the first 90 days” line.
Great post. Stuff like this is what brought me to TC.
“All team members are the smartest or most clever in their domain”. Whilst being clever is definitely a bonus, I tend to think that hiring PHD’s (Poor, Hungry and Driven) will compensate for any intellectual shortcomings. That’s how we built our company http://www.beedogs.com/
G. Orilla
my favorite quote from sequoia and a seriouse driven of ambition:
“Almost everyone we have ever invested in has been a complete unknown at the time we met. ”
to me this quote crystallizes why we play the game.
profound
I do agree Mike. These are key.
I would add another piece… my view:
1. go after a large market…
2. use the guideines that Mike points to
3. assess your position and ability to get that large market
4. get high octane rocket fuel if on track or reboot with fixes or abandon
5. Get back in the ring again
6. Got to Step 1
if you know you can’t make it either retool or abandon as soon as possible…with an emphasis on abandon… if you abandon then ‘get back in the ring again’
Very helpful. Keep those tidbits of wisdom coming.
Every road leads to Rome.
With that being said, I think what the Sequoia Capital list indicates is that the way they prefer. If you happen to prefer that way, you’re lucky so you will be possibly funded by Sequoia Capital because you share the same value with them.
However, if you feel uncomfortable with some of the points, I don’t think you must fail. Like many other people have shared, there should be other ways that can create successful businesses as well.
IMHO I would share my formula of success.
success = right team + right product + right timing
If you can get the three things right, absolutely you will succeed. Among the three things, right team is most important. Then right product. Then right timing.
If you can get two things right, you can basically survive but can not be so profitable. If you can get one thing right only, you can’t survive so you will definitely fail.
Not sure those rules applies to any successful startup, but as a grid to select potential success, it’s definitely a good investor tool.
Hmm… this text was on SeqCap site for as long as I remember, since 2003 - at least. What happened that you decided to reprint it?
@15 Lawrence (…?) - enlighten us? Clever comment with no validation. Why don’t you take a stab at answering your own clever questions, you sound like someone with either loads or no experience, diluting the debate with your non objective opinions?