Home Community Opinion: I Invest In Companies All Over the Country — Here’s What Successful Startups Have In Common

Opinion: I Invest In Companies All Over the Country — Here’s What Successful Startups Have In Common

by Stephen DeBacco

After years of experience building, scaling, selling, and merging companies, I have found that successful companies — while different industries, verticals, and size — always exhibit five key characteristics. These characteristics include companies that: 1) are run by an exceptional and enduring team; 2) solve an important and central problem; 3) operate in markets with significant opportunity; 4) can scale internally and externally; and 5) are heavily focused on operating metrics.

Exceptional and enduring team that can recruit great talent 

Leaders should live and breathe the problem they are solving. Ideal leaders are passionate, charismatic, view the world differently, and are driven to change their respective industries. These leaders have a repository of loyal employees that follow them between companies.

Leaders who can overcome adversity, drastic change, and learn from failure stand out. As ex-operators, we know that building a great company is filled with troughs and peaks. However, entrepreneurs who are tenacious and embrace change are the ones who build lasting companies.

A number of the companies that I have come across in Atlanta are fortunate to be led by world-class leaders who have the ability to tap into world-class talent. Atlanta’s close proximity to universities such as Georgia Tech, Emory University, University of Georgia, Georgia State University, and Kennesaw State produce swaths of some of the best technical talent that this country has to offer, enabling those top founders to build great companies.

Solve an important and central problem 

One of the questions we always ask entrepreneurs is “how important is your solution for your customers?” The answer to this question can make or break an early stage company. A solution that customers are in love with can create evangelical and referenceable customers, a common characteristic of the best companies. These critical solutions also result in low churn and high net revenue retention rates, especially if the platform is the primary place where business functions are executed and the customer quickly sees a high ROI.

Ideally, the solution should solve an important problem for users in multiple markets, while maintaining deep vertical functionality.

Operate in markets with significant opportunity

Markets with significant opportunity are those which: 1) are ripe for disruption or do not yet exist; 2) have a large number of target clients; and 3) have customers that recognize product value and are willing to pay a lot of money to access it. Operating in such a market also enables companies to secure cornerstone accounts and build a strong sales pipeline, creating a self-perpetuating cycle of growth.

Ability to scale internally and externally

Great companies have the ability to attract and retain strong talent, build internal operating processes, and leverage technology to support that growth. Too often we have seen companies try to solve problems by simply hiring more people, rather than working smarter by optimizing internal processes, defining roles and responsibilities, and investing in technology to create operating efficiencies. Great companies recognize that talent profiles change and organizational structure is required as companies grow.

Great companies also have the ability to forge valuable partnerships that allow them to “fight above their weight”. Developing an ecosystem of partners allows early-stage companies to compete for and win cornerstones accounts, build a pipeline, and leverage external resources to deliver and support long-term client relationships. Partners include investors, clients, distribution/channel partners, technology partners and integrators.

Driven by strong operating metrics

Great companies keep careful track of their operating metrics and review them on a frequent basis to drive decisions. Careful tracking of core metrics such as monthly recurring revenue, gross margin percentage, lifetime value and customer acquisition cost, daily and monthly active users, conversion rate, etc. give businesses valuable insights into problem areas.

The final test — would I join? 

As a final evaluation, we always ask ourselves if the people, product, and market are ones which we would want to join and be associated with. With every one of our investments, the answer is a resounding “yes”.

Since the founding of Leaders Fund over two years ago, we have been fortunate to invest in companies with these attributes in Atlanta, Toronto, New York, Boston, and San Francisco. One such company that we recently invested in is CallRail, an Atlanta-based call tracking and analytics platform which helps marketers optimize their spend. CallRail is run by a great executive team, operates in a fast-growing market as call activity continues to increase, solves a critical problem for marketers seeking visibility into their spend, and continues to add great talent and develop key partnerships. We’re confident that they will become a success story.

There are many emerging Atlanta entrepreneurs who are building great companies that will soon meet our investment criteria, especially given the concentration of key industries, talent, and experienced entrepreneurs in the region.

Stephen DeBacco is the Co-founder and a Managing Partner at Leaders Fund. Headquartered in Atlanta and Toronto, Leaders Fund is an evergreen venture capital fund focused on investing in SaaS companies.

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