What Happens When an MBA Grad Predicts Startup Success?

I read a blog the other day that really pissed me off. But then I thought they might just have something… so I stayed pissed off but kept reading.

Thomas Thurston, the CEO for Growth Science has developed what he believes is an algorithm capable of predicting the success or failure of a startup company. There’s only one huge gaping problem with is theory… he hasn’t factored the entrepreneurial spirit into the equation.

According to Thurston:

“Similarly, we’ve found about 80% of the predictive value for a startup has to do with externalities–market, customers, competitors, et cetera. Only about 20% of our algorithm looks at the startup itself,” says Thurston. “That’s a big surprise for most people. Also, the team only accounts for around 12% of our equation. 88% of what our algorithms look at has nothing to do with the team whatsoever, whereas most VCs list the team as the number one thing they focus on when investing in a startup.” (see full write up at http://www.fastcolabs.com/3021903/this-prediction-algorithm-can-tell-if-your-startup-will-fail)

This type of logic is typical scholastic thinking.  The problem with thinking like an academic as that it’s not how an entrepreneur thinks.  Here’s an example:

Academic Thinking:

“I need to learn something before I do anything.”

Entrepreneurial Thinking:

“I need to do something before I learn anything.”

The moment you take the entrepreneurial spirit of the business owner out of the equation when predicting the success of failure of a business you have made a grave error in judgement.  Here’s why:

A company could have all of the external components in fall in place perfectly like mentioned above – market, customers, competitors, and if that company is owned by an accidental entrepreneur – someone who was laid off, couldn’t find work, so thought they would open up their own company – that company will still struggle.

Likewise, you could have a company whose external components are less than idea.  The product needs high levels of consumer education, for example, but if the company is owned by someone who has an entrepreneurial heart the size of Rocky (From Rocky I, not 2 – 5), that entrepreneur will change the external circumstances by sheer stubbornness.

Here’s where I feel Thurston might be onto something (although currently I still think it’s rubbish).  Too many entrepreneurs these days don’t take the time to examine the external conditions on their business.  They go in with a dangerously-optimistic attitude, and for many entrepreneurs, this is to their detriment.

Here’s the reality of all business:

Every business idea is a million dollar concept that will give you untold sums of wealth and take you happily into retirement – at least until it becomes a reality.  Once it becomes a reality, then there are two possible options:

1. You are right.

2. You are wrong.

Either way, you still want to know the answer to that question as soon as possible, so the sooner you can take your ideas and make them real, the better.  Using Thurston’s algorithm could prove a useful tool before the entrepreneur invests their families complete retirement into  a crazy idea.