By George Chai
When considering data from Startup Genome indicating that 90% of startups fail due to any number of internal complications, we are better able to relish those that succeed. More importantly, we should learn, study, and analyze these startups to gain a better understanding of the different paths that lead to entrepreneurial success and attempt to shed light on what patterns these paths share. Since success can be found in diverse forms and stages, chronicling the stories of different categories of startups will be crucial to this analysis. Therefore, I will take an in-depth look at three types of companies in different phases of their respective lifecycles. The first type will be a big “household name” startup that is recognized by most people, emphasizing the importance of the path to market leadership and brand name recognition. The second type focuses on unicorns (private startups valued over $1 billion), showcasing the brilliance of utilizing private status and capital as a means to drive innovation in a particular vertical. Finally, the last type will be an analysis of a small startup that mimics the patterns of its household and unicorn counterparts, highlighting the driving seeds of achievement that may one day bud into long-term competitive advantage.
Our first startup is Airbnb. You have probably heard of this one, and because of that, we will consider Airbnb as a household name startup. As with many other success stories, Airbnb’s is one filled with idealism, trouble, and realization. The story begins when the two founders, Brian Chesky and Joe Gebbia, found themselves in San Francisco in late 2007, lacking money but filled with optimism. Their inspiration for the concept of a “bed and breakfast” was their recognition that during busy moments in the city, hotel rooms were booked and lodging options were limited for many travelers. In fast response, Chesky and Gebbia bought some airbeds and launched the first version of the Airbnb website titled, “Air Bed and Breakfast.” The idea gained some traction, with visitors coming in and out, but the concept needed more refinement. More precisely, the concept failed to provide a sense of security to its customers, slowing the pace of Airbnb’s initial product push. The pair tried to fix this problem by revamping their website right before the 2008 Democratic National Convention held in Denver, and found some degree of traction. Over 600 people stayed in Airbnbs during the convention, and it seemed Airbnb had finally received the recognition it sought. As a result, Y-Combinator, a top startup accelerator, took notice and gave them $20,000 in funding, an amount that seems like a far cry from today’s venture capital funding, but it kept Airbnb afloat. Unfortunately, the awareness generated over the course of the Democratic National Convention dissipated. Chesky and Gebbia used the Y-Combinator funding to travel to New York to meet users of their biggest market. Door-by-door, Chesky and Gebbia conversed with their users and discovered one commonality among them: the pictures of their listings were ineffective at convincing guests to stay. The pair decided to buy a camera and take the photos themselves, hoping to better capture the essence of the properties. Soon after, with the help of more venture capital funding, Airbnb took off to 10,000 users, and more recently, to hosting over 40 million guests.
Airbnb’s success suggests that business-oriented thinking is not necessarily the answer to reaching success as an entrepreneur. For Chesky and Gebbia, it was highly impractical to travel all the way to New York, do user interviews door-to-door, and ultimately curate the design of each listing one by one. Nonetheless, it provided them with the solution needed to become a market leader in their field, emphasizing how the path to turning points necessitates forward, creative thinking. What evolved Airbnb into the actual market leader it is, however, was scalable, business-oriented thinking. After securing funding of $7.2 million in November 2010 and $112 million in July 2011, Airbnb hired more staff, standardized its policies regarding the quality of its listings, and entered the rapid growth stage of its lifecycle. This combination of driving innovation via risky inventiveness and maintaining scalability through strategic positioning has transformed Airbnb into what it is today.
Stripe is a unicorn startup that develops software that enables businesses and individuals to send payments over the internet. For example, when consumers take a Lyft, the financial transaction to pay for the service is handled by Stripe. What makes Stripe unique and a unicorn in its field, however, is not the service that it provides, but rather the simplicity of its delivery. Due to its code design that emphasizes removing extraneous details, businesses can implement its services within minutes of installation. Stripe, however, was not always at this point in its field. The driving force behind the founding of Stripe comes from the ingenuity of the work of the Collison brothers. At age 16, Patrick Collison was the recipient of the Young Scientist of the Year award, while his brother John was the highest scorer ever for the Irish Leaving Certificate. Patrick then founded his company Auctomatic, which was later acquired when he was only 19 years old. The next year, John began his education at Harvard University. In 2010, Stripe began as a side project between the brothers after Patrick wondered why it was so difficult to transfer payments over the internet. After 6 months of prototyping, creating new iterations, and recognizing the importance of control over the entire payments process, both brothers began working on Stripe full time. They eventually started spreading the word by inviting friends onto the platform and gained enough traction to receive funding from Y-Combinator. Since then, Stripe has grown into a behemoth, valued at $22.5 billion dollars.
Stripe’s journey demonstrates the crucial element of the product-market-founder alignment between a startup’s management team to the fluid development of an enterprise. While some startups succeed without having a technical founder at the helm of management, the inherent nature of Stripe’s product necessitates a deep understanding of the industry players in financial services, the intersection of design and programming, and the direction of corporate strategy Stripe may pivot toward. Combined with Patrick’s prior experience as founder and Director of Engineering at Auctomatic, and the brothers’ natural brain power, Stripe’s success was fundamentally driven by its ability to develop a solution that capitalized on the flexibility of the internet. After being the first to market with this solution, Stripe was able to solidify its competitive advantage by way of partnerships with Visa and Amazon to improve its transaction volume domestically and internationally. Stripe’s success began with an aligned management team with a curious vision, and it is important not to forget that.
Although it is less known than Airbnb and Stripe, Docker has made a huge impact in the operating systems space. More specifically, Docker provides operating system virtualization services for businesses that want to use software packages called containers—allowing companies to run otherwise incompatible programs all on one computer system. What is interesting about Docker is that it never truly was on a path to market leadership with its original product, but rather pivoted to one instead. Docker’s original polyglot solution was tailored for the service market, but the market itself never popularized to the extent of Docker’s expectations, leaving a very small addressable market associated with the company’s services. Instead, Docker recognized the value of its own product over the value of the market it served and decided to change paths by open sourcing its container technology for developers that were in desperate need of it. As a result of this pivot, Docker popularized its product and ultimately helped develop its platform as a service market.
The most exciting part of Docker’s success is that it is not yet finished. It is currently in a phase of growth mimicking the earlier growth of its household and unicorn status counterparts. Its evolution, however, is one-of-a-kind, as it operates in a highly complex platform as a service market. Only time will tell the future of Docker and its path to becoming an IPO.
The most intriguing aspect that all three companies share is that their stories do not follow one particular path. While Airbnb began on a path of continuous experimentation and unfilled answers by two college graduates, Stripe’s story quickly fast-forwarded to success after two undergraduate brothers sought to address a problem they encountered. Moreover, while Docker sought to address one problem, it realized that a pivot was necessary to compete in the operating systems space, deviating from the paths its household and unicorn startup counterparts took. What truly defines all three of these startups, however, is their ability to identify “critical moment” periods in their development phases. For Airbnb, it was the moment that Gebbia and Chesky traveled to New York and realized how crucial the host photo was in attracting people. For Stripe, it was the moment the Collison brothers recognized the need to ensure simple backend maintenance for their users, ensuring Stripe’s software only needed a few lines of code to get started. And for Docker, as mentioned previously, it was their crucial pivot into open sourcing their container technology and popularizing their innovation. Ultimately, without any of these moments, these startups might not have ever made it to the point they are at right now.