A big data analysis of 42,000 startups has found there's one key thing that encourages growth
Thursday 25 April 2019
It is, for some, literally a million dollar question: how do you best predict your startup won't fall by the wayside but instead thrive? Moreno Bonaventura wanted to predict the likelihood of success for a startup, and to try and unlock the secrets of the mega-growth that separates Facebook, Google and Netflix from those that struggle.
With colleagues at Queen Mary University of London, Bonaventura, a researcher at the school of mathematical sciences, analysed 41,830 companies across 117 different countries over the course of 25 years, from 1990 to 2015. They tried to discover what made some succeed while other companies flopped. The answer? It's who you know (and who the people you hire know), rather than necessarily what you know.
“It’s the network which gives you quite a good insight into a startup’s performance in the end,” says Valerio Ciotti, who also works at Queen Mary University. Bonaventura adds that the more connections are person has means there's a greater "opportunity and knowledge" that can be gained.
The researchers analysed different factors to see whether they had a strong correlation with success – measured by the team as achieving an exit, getting to the point of an initial public offering (IPO), or being acquired by another company. Other measures of success, such as stock prices and the value of any acquisitions, weren’t included because reliable long-run data wasn’t available.
The alternative measures of success included the number of employees a company has at its creation, the amount of venture capital (VC) funding it has, and where the company is located. While neither VC funding nor the number of employees a company had had an ability to predict whether a startup would succeed, where it was located could make a difference.
But the real impact wasn’t where a company was based, but who it employed – and how well-connected they were. “A person that ranks higher is a person that doesn’t just know many contacts, but has connections that allows them in a few hops to reach something that’s needed in a work environment,” says Bonaventura.
That could be asking for advice for good engineers to hire as part of your firm’s expansion, or putting out feelers for an in to an investor – or borrowing a vital piece of equipment because yours is on the fritz. “The best would be to hire people who have quite a wide variety of knowledge,” Ciotti says – “so connections who have worked in different companies.”
Those in the tech world agree. “Business can’t really be done without networking,” says Ruth Plater, founder of Newcastle-based digital marketing agency Radial Path. In the few years the company has been in operation, every piece of work that it has obtained has been through contacts built up over years. “Ex-colleagues, people I’d stayed in touch with and kept up with. I’m a firm believer in not burning bridges, because usually you run into people down the line.”
However, that doesn’t mean that the people at the top of the rankings for connections on sites such as LinkedIn are the best. “The people at the top don’t necessarily have lots of time,” explains Bonaventura. “They’re well-connected, but they’re juggling those connections.”
And once you have those connections, making sure you treat them well is vital, says Plater. “Being able to nurture those contacts has a value which you can easily reduce through behaviour that you decide to adopt with that network of people. Equally, you can enhance the value by helping people in that network in what they’re trying to achieve. It’s essential to everyday business.”
Bonaventura believes this method of analysing data about people’s connections – and as a result, the company they work for’s likely success – can be used by investors looking to spend their money more wisely, and by companies wanting to self-evaluate their own performance. “This approach can be used to understand how close companies are to the ecosystem and how many opportunities they can access,” says Bonaventura. It’s vital, he says, to success. “If you don’t have these connections – and good ones, too – it’s harder that some good luck will come to you.”