Cooking the Secret Sauce: a Must-Have for Every Company
I’m afraid I have to disappoint readers who came here for the click-bait title. Yes, the Secret Sauce is a must-have, and no, there are no easy recipes for cooking it. In fact, there are no exact recipes at all, and I’ve even come to the conclusion that very often it’s only clear in hindsight what the secret sauce is. Yet, each startup that is to turn into a successful company must have it. Let me explain.
Consuming so many startup pitches, both in public and in private, in written and oral form, I got used to hearing about the Secret Sauce. While not sure where the term comes from, I clearly understand it to mean “Unfair Advantage”. And that’s probably a better, more correct term, since usually it’s more about irreconcilable advantages, rather than secrets.
“Well, I guess that sauce isn’t much of a secret, if you’re telling it to me”, I would usually joke at the founders. The chuckles and grins would usually confirm my thoughts, often followed by repeating the key argument the founder wants you to hear.
I actually got used to this “abuse” of the Secret Sauce: instead of being a euphemism for “Unfair Advantage”, this American 1960s fast-food term became short hand for “Here’s What I Want You To Remember”.
That was until I started analyzing the success stories that I had been witness to. I started with my own first company, a very modest success, one that I obviously can’t relive without skewing the entire picture through my own prejudices, fears, mostly embarrassing and sometimes proud moments. But much more interestingly, and relevantly, I took a closer look, through a series of unscheduled, serendipitous, and unstructured conversations with the founders, at startups that I’ve seen being founded, grown, and acquired in the USD 10m-100m range over the past several years.
And here’s the thing, the Secret Sauce is always there. There’s always an Unfair Advantage. Sometimes (part) technical; a patent on a design or database structure. But almost always it’s about distribution advantage. The ability to go first on a new sales channel; exclusive access to a new API; a friendly relationship with the content manager of an online directory; a corporate innovation program that opened a retail chain or online customer base to that startup only and exclusively.
In all of the cases I looked at, twenty or so in total, there was always a bigger, better funded startup, usually better located too, that was doing the same thing. Yet it was the team I knew that “won” the race to exit.
I learned two significant insights through this exercise:
- Execution matters more than anything. Tech could be better or worse, market could be best, good, or even outright poor. But the ability to seize an uplifting opportunity is what a good CEO does. It could be negotiating a corporate partnership, or getting the right strategic investment, or hiring the right person. Actually, understanding what the opportunity is and then seizing it is what execution is all about.
- The “Secret Sauce” is very visible in hindsight, but can rarely be seen when it’s brewed, and can hardly ever be predicted. As a product of execution potential of a founder team, it gets thicker and richer in flavor with every attempt, every lesson learned. As someone whose job is to help founders and provide them with resources, the best I can do is to notice good execution, and build relationships with such founders as they grow and get better, in order to be able to help when the right moment comes.
These observations also gave me interesting insights into mentorship. I mentor as often as I can across (Central and Eastern) Europe, always happy to help out friends who run an accelerator or organize a startup event.
Some of the feedback I often get is that I’m not task-specific enough in my mentorship. People want to get a manual, a process, a 5-step plan, a blueprint for success. I notice that I when I mentor, I’m usually more interested in asking a lot of questions; questions that might be relevant to finding the answers for the founder. But it must be their answers, not mine. The above exercise about Secret-Sauce brewing helped me realize I might be just doing it right, despite the criticism I get.
I guess brewing the Secret Sauce isn’t too pretty of a sight, and founders will rarely be recognized for it when it’s still hot in the pan. But let it cool down and do its magic, leading to insights on what makes great entrepreneurs.
At Cross Border Angels, we are committed to helping the best entrepreneurs around the world connect with the most useful angel investors. We also work with our companies in building top-notch market analysis, financial models, and business plans, which we call the Investment Pack. Learn more about CBA and our services at http://crossborderangels.com/entrepreneurs.