Startups are hard. 92% fail. Stack the odds in your favour.
15 May 2017
A startup is a business designed for high growth. The most comprehensive study to date, by the Startup Genome Report Extra on Premature Scaling1 assessed 3,200 high growth web/mobile startups. This study reports 92% failed within 3 years.
That’s scary.
But founders want to change the world!
So, how do you stack the odds in your favour?
Evolve an idea, don’t brainstorm it
Great business ideas often arise out of solving a pressing need or problem. These ideas are by default reality tested, as they are created in reaction to the environment. They often grow by gradual addition, iteration and user feedback.
The next world changing startup is unlikely to come from a focus group, brain-storming session, or even an inventor's notebook.
So, how can you get exposure to real world problems and also have the skills to solve them? By working on what deeply interests you (rather than chasing money or success - these are possible by-products, not startup goals).
Work on what deeply interests you
Deep interest is a prerequisite for gaining access to the insights and expertise needed to solve hard problems in any given field.
Most successful founders seem to have an inexhaustible interest, be it in science, tech, food, finance, art, law, psychology, media or design.
When you have a deep level of interest, the work is reward enough. Then, having gained domain expertise, problems and their solutions may become visible to you, that are not obvious to others. As you make discoveries, a startup idea of deep value and uniqueness may emerge. This is the time to act!
A deep interest will sustain you through the many years of running your startup. And if your startup fails, you won’t see it as such, but rather a step on your journey exploring your interest.
Your startup will take over your life
If your startup gains traction, it will very likely take over your life. Juggling product, customers, staff, research, as well as family and personal relationships, is a challenge.
You might end up quitting your job or leaving university. You might not have a salary for a few years. You may feel out of control, or that you don't know what you are doing. This is normal!
Build a business customers love
Many (failing) startups are “me too” businesses or focused on an incremental gain.
Are you having an emotional impact on your customers? Are they wow’ed by your service? If not, it might be a sign you aren't there yet, and you should look deeper into what your customers need.
Bootstrap it – test the market before spending time and money
It is critical to interact with customers as soon as possible to get product feedback. That may mean showing your product or demo before it is finished or refined. Ideally you want to do this before spending a lot of money, so you can make changes or pivot without high switching costs.
Do customers love your product? Are you able to acquire new customers systematically and what is their expected life-time value? Is your business potentially profitable? Answer these questions as quickly as possible before any significant financial investment.
Find a co-founder
Partner with a co-founder you know well, like and respect. You are going to be spending a lot of time together, co-creating the culture of your company.
It’s important you can share negative feedback openly to resolve the inevitable disagreements. It often works best when co-founders have distinct areas of expertise they can manage. For example, sales and operations.
Finally, don't pick a co-founder who is your clone. It is likely you have the same world-view, skills and interests, and a growing company needs diversity to solve hard problems effectively.
Even if you have all the skill-sets needed to be a solo-founder, it can be very hard to execute on. For example, if you are busy designing a product, it is unlikely your focus will be on marketing the business. So, as a solo-founder, it is doubly important to staff your blind-spots.
Do things that don’t scale.
Paul Graham, founder of Y-Combinator talks about doing things that don’t scale in his excellent article: http://paulgraham.com/ds.html.
This sounds counter-intuitive and goes against the startup myth. But it is crucial to get your business to a point where word of mouth and scale effects can take over to drive growth.
More importantly, getting out there will show you how your customers experience your product. So on-board them. Delight them. Spend time getting to know them.
Avoid scaling prior to product-market fit
Scaling too soon is usually a disaster. If you receive investment before validating your product, you may start building the wrong product in order to show rapid progress or to fulfill obligations agreed to in your imaginary business plan.
It's even better if you don’t need any investment and are able to fund company growth through sales. Your company will be more attractive to investors as potentially profitable and sustainable, meaning you can maximise your share ownership in negotiations. Funding can then help speed growth, rather than to save your company from collapse.
Don’t bet the farm
Given the risks, don’t bet your home and family’s future on your startup. If you are at a point when you have run out of cash, you likely won't be thinking objectively. As it is, a failed startup may leave you in debt, with a broken resume and possibly damaged business relationships. Don't extend the loss to your family and friends!
Know when you're done
Our culture promotes a “never give up” mentality. Of course, it is important to do everything you can to make your startup a success. However, at some point you may pass the point of no return, or be existing on a perpetual flat-line of (no) growth.
It is important to face reality, no matter how painful, and move on (to your next startup!).
Final thoughts
Your startup might change the world. But it going to be very tough.
Knowing the statistics can be liberating.
So, we will leave the last word to the ever serious, yet hilarious, Elon Musk of Telsa and Space-X fame.
1 Startup Genome Report Extra on Premature Scaling (Berkeley & Stanford)