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Many times in our experience, start-ups wrestle with the issue of whether their company name should be changed. It struck me that we have an interesting laboratory
regarding the value and/or wisdom of that, right within our own portfolio.
I did a very unscientific piece of research, that begs the
question of cause and effect, but still has potential for discussion.
Looking over our last couple of funds, I broke the companies into two
buckets:
- Those that never changed their name
- Those that did (once or multiple times)
The sample size here is over 50 start-ups, so it can be argued to be statistically significant.
Then, I simply measured the returns on invested capital in each
bucket, or for those firms still developing, I put them into either a
"likely winner" or "likely not" category given the best available data
we have at the moment. The results are rather startling.
Companies that did not change their name show a much higher rate of success than those that have!
Now to be fair, this is not prescriptive, as I can point out
examples of name-changers who did (or are doing) quite well. But on
balance, the trend is clear. If you change your company name, you are
much less likely to be a success than if you don't. So, is there any
reason to believe there is cause and effect here, or is this just the
randomness of start-up failure at work?
Perhaps we can speculate on why it might be a sign of something fundamental. A name change can come from a number of factors.
- You are a very technical team and thought a very technical
name for your company made sense. ( You think Marketing is for sissies.)
- You are a very clever technical team and loved the idea of a
series of letters that were available as a URL that sounded like a real
word, but spelled differently. (For an off-the-wall example: "ghoti"
as "fish". gh as in enough, o as in women, ti as in the suffix -tion). I
know - no one would be that crazy, but you get the point. You think
Marketing is about clever letter and word-play, even if no one can find
you with a web search.
- You started life with a company name that was either too
broad (Enormous Enterprises), or too narrow (Ruby-on-rails
templates.com) and need to reposition to what you do now.
- Your product name, which was different than your company
name, became more well-known than your company name - and you yielded to
market forces.
- You hired a new CEO, or new VP of Marketing or Sales, who decided they just had to put their mark on the company.
I think a case can be made that in every bullet item above there is a
business flaw or weakness that is getting reflected in the name change.
And so those that didn't make those mistakes may have had a higher
probability of success.
Perhaps in the name game, unlike the malleable world of software development, getting it right the first time matters.
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