The 4 Signals That Can Predict Whether A Startup Will Succeed Or Fail

No matter what some people may tell you, it remains impossible to predict the future with any degree of true certainty. But when it comes to predicting the likelihood of a startup’s survival, we are getting closer.

Thanks to an incredible amount of data that is generated on a daily basis, the smartest venture capitalists have learned to observe signals other than traditional performance indicators that accurately point to the potential success of young companies. 

According to a leading alternative signal data provider Coresignal, the right information can reveal how every startup performs according to four main predictors of success. These signals are the company's growth rates, maturity levels, quality of leadership, and public approval. 

Let’s take a closer look at each of the success predictors. 

Signals Of Early Growth

A clear signal indicating that a startup is on the path to success is the company’s growth rate. Early signs of growth are marked by the rising number of employees, which can be tracked on most publicly available platforms such as professional social networks. 

However, looking only at the past and current growth rate doesn't show the full picture. Equally important is the prospect of the company’s expansion in the future. The easiest way to make this forecast is to look at the active job postings on the major job search websites.

As an extra tip, look if the company is looking to grow its recruitment team. This is a clear sign that the need for new employees is overwhelming. 

Signals Of Corporate Maturity

If decoded correctly, signals could also hint at the company’s maturity levels. Looking closer at the structure of the startup and examining elements such as the predominant job roles, department size, and the employee skill set could reveal the degree of expertise as well as the potential of further development.   

For example, a Fintech company armed with a strong marketing team, but lacking in skills and headcount in the technology department is unlikely to achieve an innovative breakthrough. 

Investors should look for signs of the company's confidence in its product, which could be reflected by a quickly growing marketing department in an organization with a firmly established expert tech team. This situation usually means that the company is convinced that the product or service has reached a satisfactory level and is ready to be widely adopted. 

Another signal which could suggest that the company is ready to dominate the market is above-average salaries. Spotting this trend could indicate that the startup is in a strong position to fill the high demand positions with the most qualified professionals. 

Signals Of Strong Leadership 

Effective leadership can make or break the company. That is why the information about the founders and leaders of the company is one of the best predicting factors of success.

For instance, if a company’s main decision-makers are already accomplished in similar business ventures, this is a good signal that they know the industry. The trickier part is to evaluate the meaning of previous failures, which can indicate both incompetence as well as greater lessons learned.

The easiest way to collect this information on previous education and professional experiences is to look at publicly available data found on professional social networks and platforms. 

Signals Of Positive Reception 

It goes without saying that the company whose products or services are appreciated by customers is on the highway to becoming a market leader. For this reason, the measurement of public reception can generate serious signals for investors. 

In this case, signals can take the shape of the positive dialogue online, including the reviews, ratings, mentions on social media, or Q&A sites. Another good place to look is product forums, where clients are given space to discuss the performance of a given technology. 

Overall, the assessment of the buzz behind the product or service would be a powerful contribution to the decision making process regarding potential startup investments. 

One Last Thing To Know

The internet is a crowded and noisy place where data gets outdated faster than yesterday's news. Knowing that information extraction can sometimes be a long and cumbersome process, the majority of investors rely on alternative data providers to satisfy their needs for insights. 

So, the last advice of this article would be to work only with those data providers who are able to supply fresh data that is tailored to suit the specific needs of the investment objective.