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Most Startups Fail, How Will Yours Be Different?

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The large majority of startups fail, several sources say 9 out of 10, but this proportion only includes those that have reached the stage where they could be noticed and included in these statistics, hence excluding all those people who worked for months on an idea (and maybe launched something) without being noticed.

We should ask ourselves: “Why should my startup be the exception?”.

In the last few years there has been tons of literature explaining the typical mistakes committed by startups and how to avoid them. Why then, haven’t startups used this wealth of information to increase their chances of success?Present failure rates are still extremely high, leading many to be sceptical that a newborn startup could ever accomplish anything, despite the existence of dedicated methodologies.

I’d like to first summarize in one sentence the main reason why the majority of startups fail despite being aware of the appropriate methodology:
Most Startups do only what they enjoy to do.

In the first chapter I’m going to list the typical activities of a fictional average startup that are more useful to live the startup dream rather than getting concrete results: some points are a bit exaggerated for the sake of fun, but still pretty close to what usually happens.

In the second chapter I suggest how you can seriously distinguish your startup and enter an elite club, and why yet almost nobody does that.

Preferred Startup Activities

(a.k.a. How to keep dreaming as long as possible)

  1. The CEO spends nights designing a detailed wireframe of the app, including UX and all possible functionalities.
    … without wondering why anybody should download that app in the first place.
  2. The Marketing guy creates the Facebook Page and Twitter and Instagram profiles, and by spamming all team friends and acquaintances they get a number of likes and followers!
    … unfortunately this doesn’t indicate whether these friends intend to actually use the offered service.
  3. The team gets bigger by including numerous and enthusiastic friends! And it’s never a problem to find an appealing title for each of them. (I swear I saw “Business Development Africa” for a person who didn’t have any experience in Biz Dev but was originally from Cameroun and had a friend who worked for Orange Cameroun).
    … it’s not clear which service exactly the startup wants to offer, but the worldwide expansion is crystal clear.
  4. The team goes through a lot of Board of Administration meetings, spending hours in brainstorming about the planning of the app and of the conquering of the world.
    … after months of brainstorming it’s still not clear what the Unique Value Proposition is, but the team had a lot of fun. Above all they can keep dreaming and postpone the time when they should start to face reality.
  5. The Marketing guy and the graphic designer prepare a super cool deck and a super cool video, where they describe the app which would change the world once everybody uses it
    … but that everybody will use it has yet to be verified.
  6. The Analyst runs the market research: “Nobody is offering a service like this!”
    … great, but you should wonder why (in most cases it’s because nobody wants that service or there is an intrinsic problem to make it useful, but not necessarily of course).
  7. The Business guy looks for investors,
    … without knowing how much money the startup needs, because there is no plan, and without wondering why anybody should fund a startup where the founders have not invested a cent in it.
  8. The Business guy writes the Business Plan, a very professional one (The guy has an MBA, man!): 70 detailed pages, including hiring and firing plan (if something goes wrong, fire the sales guy) and a financial plan where lines always goes upward and rightward.
    … 70 pages of sheer hypotheses that could be trashed by the first customer: “no business plan survives first contact with customers” (Steve Blank).
  9. Thanks to a connection, a national newspaper publishes an article about them, where they can complain that their idea is worth millions of Euros (it’s proven: it’s written in the Business Plan!) but in their shitty country nobody funds them.
    … see point 7.
  10. The Developer writes the code, using the technology he knows best and successfully coping with interesting challenges.
    … without anybody in the team wondering whether the product under development will be useful for anybody.
  11. The team participates in every possible Startup Weekend or similar event across their country, and eventually they win one!
    … which doesn’t get the team any closer to success: these kinds of events can be useful during embryonic phase (just got an idea) in order to find co-founders; during these events the teams usually prepare beautiful empty boxes. If you already have a team you can work anywhere anytime, not just at the event, and if you need the basic mentorship usually offered during these events you definitely have a long way to go (I’ve stressed the word “usually” as there can be exceptions).
  12. The team participate in any possible competition (private or public), and finally they also win some money from state funding!
    … investments should be used to scale, but any number multiplied by zero is still zero: many startups burn this money to develop something that nobody wants; others realize they don’t even have a clue how to spend this money in a useful way (they don’t have anything to be scaled).
  13. The CEO reads the Steve Jobs biography and watches every movie about him, an undoubtedly hard activity since there is a new movie every year and they are terrible.

While the team hums with activity, they also receive some encouraging signs:

  • Talking about the idea with friends and acquaintances, “the feedback is positive”, because they receive comments like “nice idea!”, “ingenious!”, “The video pitch is super cool!” “I think it could work”, “it would have a worldwide reach!”, “I believe a lot of people would use it”
    … unfortunately there is not a single person so far who has concretely demonstrated they are willing to pay or at least to sign up for the offered service.
  • Positive feedback arrives also from an investor!
    … the investor has not given a single euro yet, he’s just said “interesting idea, work on it” …why not?! Regarding this, we shall add that Steve Blank warns also against those investors who have actually funded a startup and urges it to launch asap (I wrote about this here).

The elite club

(a.k.a. The hard truth)

“…you have to assume that running a startup can be demoralizing. That is certainly true. I’ve been there, and that’s why I’ve never done another startup.” (Paul Graham).

Very, very few are brave and patient enough to cope with the challenges listed below, because they are definitely less exciting, more boring and often frustrating. Accepting these challenges means to be part of an elite club of people who have much higher chances of being successful:

1. Admit to not knowing anything and learn humbly.

Creating a startup requires methods that are rarely taught in an MBA and can hardly be intuited with common sense. On the contrary, in the case of startups, common sense usually leads to disasters. There is a wide literature from Silicon Valley about methods for startups, written by people who learned from experience and from mistakes. To learn the basics I suggest Eric Ries’ “The Lean Startup” and two short introduction chapters included in Steve Blank’s “The Startup Owner’s Manual”, which you can read here and here. In addition, I suggest to get mentorship from those who have been studying and applying these methods for years (there are excellent mentors not only in Silicon Valley but I guess everywhere in Europe now).
“That’s it?!”
It’s not that simple apparently: I met several startuppers who had got to know these concepts (very appreciated according to them), and yet they kept doing the opposite of what it’s taught. That’s because applying these methods implies a rigorous and sometimes frustrating job that most people are not willing to undertake (they prefer to keep living the startupper dream). Some of the following points are in fact the surface of concepts that need to be examined in depth through the books mentioned before (and much more than those), and with the help of a professional mentorship. But be careful, there are tons of incubators/accelerators and startup events and competitions everywhere. You will meet many people who introduce themselves as expert startup mentors despite their knowledge being close to zero. Do your research first, and you should be able to distinguish expert mentors from the posers.

2. Build a team comprehensive of all core competencies.

The founders have to be (or to become) experts about what they offer: if their core business is a digital service it’s fundamental that (at least) one of the co-founder is a developer, and not anyone, but a developer with the (main) skills required to develop the startup specific service: this is hard because (roughly speaking) there are not many developers able to deal with the different aspects of a digital platform (e.g. full-stack: both backend and frontend). It’s dangerous to just pay somebody for developing what is the startup core-business. First of all, hardly anybody will fund a startup whose team lacks the main competencies, because having the money to pay the development doesn’t solve the problem: those working just for money do not work with a long-term view, they are not interested in what happens once their job is done and they have been paid; they are not interested, for instance, to write a code which can be easily be modified by somebody else; this means that if the a tech confounder is finally taken in, he/she will likely have to re-write the code from scratch. A more acceptable option is to have a tech co-founder who, if he/she doesn’t have time for coding, is held accountable for it and supervise the (paid) development making sure it is done properly.

3. Quick and Dirty.

We are all proud of what we do and we don’t want to show something with flaws, but during a startup beginning phases (when the idea is under test), numerous product iterations are always required. Hence it’s unthinkable to have a perfect product each time, because iterations cycles would become endless. On the contrary, different MVPs will have to be built and tested quickly (after understanding MVP Strategy meaning and Blank’s Customer Development process thoroughly). This means showing things which are very far from what you thought you would have proudly shown to your friends and relatives.

4. “The Audacity of Zero”.

As Eric Ries pointed out, before launching a startup the only existing numbers are forecasts (and usually they are awesome), which is why startups tend to postpone the release of their service. Releasing a service means facing the real numbers, which are inevitably low during first phases, and often remain low forever. This fear can be fought off by understanding that it’s obviously wrong to launch a product toward the whole market all of the sudden without testing it in a niche market first. Again, MVP meaning must be mastered: here we will just say that the objective in this phase is to test the idea rather than achieving a great number of users. Like mentioned in point 1, it’s not that simple: many people who said they understood the concept of MVP do not in fact create and test it, fearing to discover that their idea doesn’t effortlessly convert into an overnight success; instead they keep planning the big launch, so big that it obliges them to procrastinate forever the day in which they have to face reality.

5. No exciting numbers to boast, only boring percentages.

Once you start testing the idea with a series of MVPs (lo-fi, hi-fi) your users base will remain low. In some cases it has to remain low, and you have to resist the temptation to make it increase too much. This means that most of people will judge you and your team a bunch of delusional fools. Quoting Paul Graham, these people are “like someone looking at a newborn baby and concluding ‘there is no way this tiny creature could ever accomplish anything.’” Many successful startups kept a very small user base for a long time before taking off. Yet your friends and acquaintances will be aware that you have been working on some elusive idea for months and the number of users and facebook likes are still very low, and they will pity you. You will have to ignore them and focus on getting actionable metrics, which are much less exciting than the number of facebook likes. This requires first to know the concept of actionable metrics vs vanity metrics, mentioned on Eric Ries’ “The Lean Startup”, here we will just say that we are talking about, respectively, relative vs absolute numbers.

6. Fail, try again, fail again…

We all get to know successful startups as they are once they achieves success, but we usually don’t know what they were before and how many iterations they went through. The history of Facebook is the most dangerous ever told, because it’s a misleading exception: not only because his young creator was a prodigious coder like few others in the world, but also because it grew without having to iterate much (although they wisely proceeded little by little during the first year). It’s an outlier, hence not be taken as example. Regarding all the other startups (Twitter, GroupOn, Pinterest, Airbnb just to mention a few) the founders went through a lot of failures and had to start again many times before getting to the solution as we know it today. The hardest challenge is not to cope with an obstacle, but admitting that the chosen path does not lead anywhere and that you have to throw away months of work and restart from a previous point. That happens because a startup is trying to offer something new, so it’s obviously not clear who are the users and whether they will appreciate this novelty. Plans are based on sheer hypotheses, and some of these are likely to turn out to be incorrect and hence to be revised. It’s perfectly normal for this to happen, expect that it will.

7. “Get the heck out of the building”.

There are no truths in our office, only untested hypotheses. Only users can confirm these hypotheses and indicate which direction the startup should take. It’s almost impossible to achieve success without a rigorous Customer Development process (explained by Steve Blank, see point 1), which requires the startup to reach the users/clients wherever they are and manage to get face-to-face meeting with them. Some founders dodge this strenuous activity by quoting Henry Ford and explaining that users don’t know what they want: true, but the founder should explain to users what he/she thinks they want, and verify that they agree. Online questionnaires are certainly an easier alternative and they can be useful, but they will never substitute the truths that you learn by talking with users/clients in front of a coffee, meaning that you will have to spend a lot of time in reaching them and running behind perfect strangers.

8. “Recruit users individually”.

There is another job to be performed outside the office besides face-to-face interviews. In order to build a community of active users, a startup usually have to look for and recruit the early-adopters (often) one by one, and have to offer them a dedicated service like if they were unique in the world, in a often manual mode: this can appear counterintuitive for a digital service aiming to get millions of users, and it’s definitely not a job that the average startupper was expecting and is willing to do. It’s about spending a huge amount of time in a meticulous job which includes doors slammed in the face. This is how Airbnb and many others managed to build their first community of engaged users who then acted as evangelists. For some more clues about this topic I suggest to read this Paul Graham’s post.

9. Move if required.

To increase your (already low) chances of success, you should be in the most suitable place. If you intend to launch a digital startup, you will probably have better luck in Silicon Valley for several reasons (some of the advantages are mentioned here). Being there has its drawbacks as well. There might be more suitable places depending on the field and focus of your startup. What is sure is that when you launch something in the US, you can reach to a population of over 300 millions highly-digitalized people whose language is understandable for most of the world. Hence reaching critical mass and consequent worldwide expansion are much easier if you launch from the US. This is an enormous advantage you don’t have in any European country. So there are many reasons why moving might be suitable. In that case, no matter what, you should be ready to leave everything behind and move for undefined time.

10. Complete this list.

I didn’t say I know everything 🙂 …the previous 9 points are just those that I happened to tackle with during my short and incomplete startupper experience …watch out: there will be other challenges! If you are wondering what else we are still missing, we can simply add that a startupper should be ready for everything: to act in sometimes chaotic and hard to plan situations; and to tackle with unexpected challenges, where the founders must be determinate, up for self-sacrifice, result-oriented, pragmatic, and creative. The previous 9 points are just a summary of how hard the startupper job is, you can have a better idea by reading the example of Airbnb here. The good news is that there are mentors who have already coped with these challenges and/or helped others to do the same. Thus, for the non mentioned challenges …see point 1!

Conclusion

Before engaging in a startup adventure and spending a huge amount of time and money (and making others do it) you need to be aware of what you are to expect and to be ready to tackle the challenges mentioned above. Start with putting point n.1 into practice before anything else.

Whoever receives an offer by a startup (usually developers are reached by startuppers who have the idea but have no clue about coding) should first investigate whether the startuppers in question are going to waste a lot of their time, or if they are aware of what is awaiting them and are willing to do their job.

The growing scepticism toward the startup ecosystem is understandable: many people want to live the startupper dream, but very few of them face the hard truth, either for lack of method knowledge, or for laziness, or both. Optimism per se is naive, but it can be justified if a team masters all the core competencies and decides to undertake the methods mentioned above, thus becoming part of an elite club, which is just as small as the number of startups that achieve success.

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About the Author

This article was written by Alessandro Balbiano

Entrepreneurship

What Kills A Startup

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1 – Being inflexible and not actively seeking or using customer feedback

Ignoring your users is a tried and true way to fail. Yes that sounds obvious but this was the #1 reason given for failure amongst the 32 startup failure post-mortems we analyzed. Tunnel vision and not gathering user feedback are fatal flaws for most startups. For instance, ecrowds, a web content management system company, said that “ We spent way too much time building it for ourselves and not getting feedback from prospects — it’s easy to get tunnel vision. I’d recommend not going more than two or three months from the initial start to getting in the hands of prospects that are truly objective.”

2 – Building a solution looking for a problem, i.e., not targeting a “market need”

Choosing to tackle problems that are interesting to solve rather than those that serve a market need was often cited as a reason for failure. Sure, you can build an app and see if it will stick, but knowing there is a market need upfront is a good thing. “Companies should tackle market problems not technical problems” according to the BricaBox founder. One of the main reasons BricaBox failed was because it was solving a technical problem. The founder states that, “While it’s good to scratch itches, it’s best to scratch those you share with the greater market. If you want to solve a technical problem, get a group together and do it as open source.”

3 – Not the right team

A diverse team with different skill sets was often cited as being critical to the success of a starti[ company. Failure post-mortems often lamented that “I wish we had a CTO from the start, or wished that the startup had “a founder that loved the business aspect of things”. In some cases, the founding team wished they had more checks and balances. As Nouncers founder stated, “This brings me back to the underlying problem I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made.” Wesabe founder also stated that he was the sole and quite stubborn decision maker for much of the enterprises life, and therefore he can blame no one but himself for the failures of Wesabe. Team deficiencies were given as a reason for startup failure almost 1/3 of the time.

4 – Poor Marketing

Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business. Yet, in almost 30% of failures, ineffective marketing was a primary cause of failure. Oftentimes, the inability to market was a function of founders who liked to code or build product but who didn’t relish the idea of promoting the product. The folks at Devver highlighted the need to find someone who enjoys creating and finding distribution channels and developing business relationship for the company as a key need that startups should ensure they fill.

5 – Ran out of cash

Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by failed startups. The decision on whether to spend significantly upfront to get the product off the group or develop gradually over time is a tough act to balance. The team at YouCastr cited money problems as the reason for failure but went on to highlight other reasons for shutting down vs. trying to raise more money writing:

The single biggest reason we are closing down (a common one) is running out of cash. Despite putting the company in an EXTREMELY lean position, generating revenue, and holding out as long as we could, we didn’t have the cash to keep going. The next few reasons shed more light as to why we chose to shut down instead of finding more cash.

The old saw was that more companies were killed by poor cashflow than anything else, but factors 1, 2 and 4 probably are the main contributing factors to that problem. No cash, no flow. The issue No 3 – the team – is interesting, as if I take that comment ” I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made” and think about some of the founders and startup CEOs I know, I can safely say that the main way that any decision was made was by agreeing with them – it was “my way or the highway”. I don’t therefore “buy” the team argument, I more buy the willingness of the key decision makers to change when things are not working (aka “pivoting” – point 9).

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About the Author

This article was produced by Broadsight. Broadsight is an attempt to build a business not just to consult to the emerging Broadband Media / Quadruple Play / Web 2.0 world, but to be structured according to its open principles. see more.

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Callum Connects

Jasmine Tan, Director of Stone Amperor

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Jasmine saves her clients time and effort when doing kitchen fit outs with her biz Stone Amperor.

What’s your story?
I started working in the industry in 2003. I was in a marble and granite supplier company for 5 years. Even though I left the company, I still had customers calling me for my services. I referred them back to my previous company but they refused to because they loved the fast response service that I offered. I realised that customers do look at prices, however most of them prefer quality over quantity. Thus I have decided to establish a sole proprietor company also known as 78 Degrees which later rebranded as Stone Amperor in 2014.

What excites you most about your industry?
The kitchen countertop industry is a very confusing market. There are many brands, materials and prices to choose from. What excites me the most is my ability to help clients choose the best materials and brands within their budgets, whilst saving them time and effort.

What’s your connection to Asia?
I have been in Asia all my life and I love Asia. No matter where you go there is no place like home.


Favourite city in Asia for business and why?
I love Singapore. This is because Singapore has always been a stable country and it is great for doing business. However as it is a small country, it can be really competitive. I believe that if just do your best and give your best to your customers, you can overcome this.

What’s the best piece of advice you ever received?
“Take actions. Learn and improve continuously. An idea without action is just a dream.” This was really good advice that I received from my partner.

Who inspires you?
A very down to earth billionaire from Malaysia, Robert Kuok

What have you just learnt recently that blew you away?
Property is the foundation of every business.

If you had your time again, what would you do differently?
Own instead of renting property for my business.

How do you unwind?
I enjoy going shopping, watching movies and hanging out with friends. I am quite a simple being.

Favourite Asian destination for relaxation? Why?
I love going to Taiwan as I love the culture there. Everyone is so polite and the weather is great.

Everyone in business should read this book:
Sun Tzu, Art of war

Shameless plug for your business:
Perfect top, Perfect price, Perfect life from Stone Amperor

How can people connect with you?
Email me at [email protected]

Twitter handle?
@StoneAmperor

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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