At the Kauffman Foundation, we track multiple factors that impact new firm success rates. From this, we know that access to experienced mentors, capital, customers and collaborators separate successful startups from those that fail. For startups, collaboration often takes shape in two ways: internal-facing activities and external-facing activities.
The most obvious internal-facing forms of collaboration are building your team and establishing the culture. The inability of teams to work well together when starting a new firm is often the first failure point — more than 65 percent of startups fail due to founding team issues. Some of the factors that can help reduce failure rates include establishing a clear set of expectations on roles and responsibilities in a founder’s agreement; discussing early on the equity split and associated vesting schedules; creating a process to vet disagreements on company direction; and determining how to accommodate a founder’s departure while keeping remaining team members engaged. For other valuable insights on the topic, watch a video of entrepreneurs sharing their founder experiences followed by a panel discussion at a recent summit for life science founders hosted by the Kauffman Foundation, and read Founder’s Dilemmas, by Noam Wasserman.
External-facing activities around collaboration take many forms and are likely to be driven by the complexity of the industry, the capabilities of the founding team and the willingness of the team to share value in exchange for speed or better market access. These external collaborations or partnerships typically are with potential customers, manufacturers, leading players in the industry, etc. But startups trying to solve particularly complex problems or hoping to be truly disruptive should reach outside of their disciplines and, in some cases, their industries. This enables them to be more creative and to repurpose solutions already developed in other spaces and thus move forward more quickly and at a lower cost. An example of this is the development of an already-approved anti-fungal agent, CPX, for the treatment of hematological malignancies or blood cancers. By using an approved drug with a known safety profile, the partnership between the scientist (Dr. Aaron Schimmer of Princess Margaret Hospital in Toronto), a disease foundation (the Leukemia & Lymphoma Society), and a cancer research center (the University of Kansas Medical Center) among others was able to move from test tube to patient in record-setting time.
Another opportunity for collaboration that we hope startups will consider more often is to work with other startups. By collaborating with new firms that are also trying to enter a market, a startup can make its overall value proposition more compelling to customers and thus improve its odds of getting to market in a timely fashion and have a sustainable business. An industry where this approach can work well is healthcare. An example of this is a Kauffman demonstration project that is in its infancy where entrepreneurs are coming together and integrating their technologies (personal health record system, social media platform for patients, passive monitoring technology, mobile apps, custom user interfaces, etc.) to improve patient health and lower cost of care. In this case, the value proposition to patients and the physicians who treat them will be higher than if each entrepreneur engaged this community separately. Curing diseases, lowering health care costs and growing firms — a potent formula for a better economy — all as a result of connecting seemingly disparate players.
It’s a pretty simple concept for new companies interested in strengthening their chances of success. Practice collaboration internally and externally, and expand your reach beyond the obvious players to accelerate your path to market.
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