Patterns and Knowledge Drive New Venture Success

A high failure rate for new ventures tends to be expected. It is often thought that success with new ventures is the classic example of high risk, high reward, and that there must be many failures for every great success in such risky situations. Yet, my research into business success and failure patterns finds otherwise. There are patterns to new venture success and it is prudent risk, not high risk, that leads to high reward. And, paying attention to patterns and knowledge can help identify those new ventures that have high potential for extraordinary reward.

In fact, when I first started researching business success and failure patterns more than 25 years ago, my goal was to investigate what makes new products and new ventures succeed. Early on, I expanded my topic to the broader area of business success and failure patterns. I find that the patterns and knowledge can help distinguish between new ventures with strong success potential and those that are most likely to fail. Pursuing new ventures with strong potential mitigates risk, bringing it down from high to a more prudent level. This makes success so much more likely than it would be with bold, risky moves.

Today, prominent players in business and technology–like Google, for example—are also paying attention to knowledge and patterns. Although better known for search and for Android mobile phone systems, Google is also in the venture capital business, providing funding to new ventures. And, Google Ventures is finding that knowledge and data can guide decisions about which ventures are likely to succeed.

Google is known for using analytics to support decisions throughout its organization, not just in its new ventures unit–although the recently announced sale of the Motorola phone unit, which Google has owned for a fairly short time, has been raising questions about Google’s analysis/assessment of its decision to make that acquisition, and about whether the value of the patents Google acquired from Motorola could justify the decision.

Nonetheless, since Google is known for decision support analytics, it is not surprising that Google uses this kind of expertise to evaluate the success potential of new ventures. Doing so can help Google achieve a better track record for its venture investments. Patterns, knowledge and analytics can be very powerful in helping to understand what drives the success of new ventures, as well as to replicate that kind of success in future ventures.

According to an article in the January 13, 2014 issue of Fortune magazine titled “Where Google Ventures is Pinning Its Hopes” by Miguel Helft, Google uses “data scientists to help vet investments by analyzing scores of variables to detect what’s likely to work based on what’s worked before.” The Fortune article indicates that Google’s approach to new ventures seems to be doing well, since “only a handful of its portfolio companies have been shuttered” and “more than 20 of its companies have gone public or been sold.” The article mentions one of Google’s ventures that sold for about a billion dollars.

Although the Fortune article reports that Google apparently has a team of data scientists developing sophisticated models of new venture success, as I see it, even a somewhat less technical study of what works and what does not can add knowledge that helps gauge which ventures might be successful. In fact, I find that sometimes a less quantitative, more explanatory approach can have huge benefits when trying to understand specific circumstances that might affect the outlook for a particular business. This entails thinking through, analyzing, and evaluating what might work and why, not merely accepting conventional wisdom about what is thought to work.

And, apparently Google also recognizes the importance of not over relying on the data. According to a Fast Company article “Google’s Creative Destruction” by Farhad Manjoo (described online as: a version of this article appeared in the May 2012 issue of Fast Company magazine), Joe Kraus, a partner in Google Ventures, says “they use data as a decision assist tool, rather than a decision making one.” The Fast Company article also explains that Google Ventures examines and asks questions about what drives the success of a start-up, reads academic research related to new ventures, and uses the models developed by data scientists—all to determine what works.

So, for reduced risks and greater success with new ventures, pay attention to patterns and knowledge. Although not a magic bullet that always guarantees spectacular success, patterns can be extremely powerful for evaluating what is likely to succeed and what is not. They can move a business forward on the path to success. They can help investors choose new ventures with strong potential. And, they can do so without always encountering the high failure rate that is common with new ventures.

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