Start-Up Lessons from Formula 1

I’m a huge fan of Formula 1  - arguably the pinnacle of motor racing.  If you don’t know anything about it, you can learn more here.  

I attended last weekend’s Canadian Grand Prix and despite having attended many F1 races over the years – the excitement of the racing, and spectacle of the weekend never gets old. 

There are three new teams in F1 this year, and they are struggling to keep up with the established big boys like Ferrari  and McLaren.  I  got to thinking about the similarities – and differences – between success in starting up a business, and success in starting up a new team in F1.   

1. You need more money than you think.  F1 is incredibly expensive and the new teams have to scramble to be competitive with established teams that have substantially more resources (team budgets are capped at 40 million pounds annually - that’s about $60 million!!).  All three of the new teams have spent the money faster than they anticipated and one or more may not make it to the end of the season.  As for start-ups…. I have been reading a lot lately about the “death” of venture capital and angel investing because of the ease in which a company can be started with little to no capital.  Don’t believe it.  Of course there are examples of firms that start from scratch, but most business enterprises need capital to grow and prosper – and they woefully underestimate how much money they will need to do so.
2. BUT… Money does not guarantee success.  Toyota  entered F1 in 2002 and over the next several years spent several hundred million dollars before their exit in 2009 with exactly “0″ (zero!) wins to show for it.  Start-ups that are well-funded have an advantage - but without a sound plan, the right offerings to an eager market, and sound execution – they will end up in the same place.
3. Strive for incremental improvement.  The difference between winning and losing in F1 is measured in seconds.  The new teams take each day and try to squeeze a little more speed and a little more reliability out of their cars and drivers.  New businesses need to do the same.  Immediate “home runs” are rare in the business world, and the best companies strive to make progress every day, week, and month.
4. In the beginning, finishing the race is a victory.  There is a saying in motor sports that you can’t win if you don’t finish.  For the new F1 teams, finishing a race is a legitimate first goal.  Start-ups are often in the same situation.  The latest SBA stats show that new businesses have a 50% chance of surviving the first year.  But once you get past that first year, the survival rates increase dramatically.  Slow and steady often beats the high-flyer.

Of course there are a lot of dissimilar characteristics, as well.  F1 teams are heavily dependant on advanced design and technology – not all businesses are.  F1 teams compete under a set of (usually) consistent rules – most businesses do not.  Finally, motor racing is a dangerous and life threatening sport - I hope your new business isn’t that exciting.

If you have a chance to catch an F1 race, you should do it – you just might learn something about your start-up!