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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

Science is the Next Big Thing in Startups

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From pharmaceuticals to petrochemical processes: Newcomer companies and investors and investors alike are setting their sights on science. How the start-up scene moves beyond the mobile apps bubble…

For the last two years Silicon Valley analysts and venture capitalists are anticipating the burst of yet another bubble. This time, under the risk are the mobile start-ups which constitute the biggest share of the market. Out of 50 companies listed in Forbes’ “the hottest startup of 2015” (by valuation) only six companies are based on innovations in other-than-mobile area, one company provide cleaning services, while the rest are diverse mobile apps.

Meanwhile many products listed can be barely called innovative. A significant proportion of the listed start-ups are texting apps, apps for people search (starting from business partners to life partners) or delivery services. While those services can definitely facilitate one’s life, in general they differ from their predecessors by only a narrower audience.

Many venture investors expect stagnation if not decrease on the markets, which is why they start to transfer their capitals from start-ups offering customers software to start-ups offering specific solutions for existing businesses. Such companies are expected to demonstrate more stability in the near future.

The Market for Mobile Apps Might be Saturated

Back in 2012 a talented entrepreneur could walk into a venture capitalist’s office, say his startup was a mobile-first solution for pretty much any problem (payments! photos! blogging!), and walk out with a good-size seed investment. “That pitch was enough to get going,” says Roelof Botha, a partner with VC firm Sequoia Capital. “It’s not enough anymore.”

“I think investors are bored with investing in another messaging app. And our idea is crazy enough that it might just work. ”, has declared in 2014 Nadir Bagaveyev a founder of a start-up using 3-D printers to make rocket engines. By 2016 the company attracted investors funding sufficient to launch its first rocket.

Pharma and Biotech Start-Ups in High Demand

Currently the most successful science-based start-ups are the companies offering innovative solutions in the field of pharmaceuticals and biotechnologies. It’s noteworthy that despite the previous revelations and even judicial proceedings the list of the most expensive start-ups still includes Theranos, blood analyzing laboratory, whose story did not descend from the main pages of the global leading media from 2014.

It first amazed the audience with its fantastic take-off and then with its collapse. One of the crucial parts of the success story of this start-up is its fundamental difference from the majority of the services produced in the Silicon Valley. Unlike the others, it was not a story of yet another beautiful gadget for communication or mobile app, but the story of the scientific idea which intended to conquer the world.

The great success stories in other scientific areas are now happening on occasional basis. However certain facts allow to predict that the situation is to change soon. One of such factors is growing interest among the big corporations to attract innovative solutions from outside to develop their businesses.

Given the accelerating pace of scientific and technological development of the world, the activities of internal R & D departments are often turn to be insufficient to ensure stable development of innovative business. Outsourcing of the R&D may become the efficient mechanism to stimulate the growth of the company. And high-tech start-up can certainly benefit from it.

Start-Up Technology for the Petro-Business

In December, 2016 world leading companies in the field of gas processing, petrochemicals and chemicals announced their intentions to enforce their R&D capacities by attracting start-ups. 3M, AkzoNobel, BASF, The Dow Chemical Company, DuPont, Henkel, Honeywell UOP, LG Chem, Linde, Sibur, Solvay and Technip together created a global stage for startups and investors.

“The petrochemicals industry can and must rely on the potential of open innovations to facilitate further inventions and implementation of new solutions in all major application areas, from construction and medicine to packaging and 3D printing. Thanks to the participation of international partners, IQ-CHem is now the largest global project within the industry which attracts innovative solutions and provides for their implementation into practice,” said Vasily Nomokonov, Executive Director of Sibur, a company which coordinates the project.

Positive Experience in Chemicals and Beyond

Some of the listed companies have already gained positive experience in working with start-ups which may have driven them to elaborate a systemic approach to attract innovative companies.

At the beginning of 2016, SIBUR and RRT Global start-up reached an agreement to build a pilot plant for isomerization based on RRT Global technologies in Sibur’s Industrial Park SIBUR “Tolyattisintez”. According to Oleg Giyazov, co-founder and CEO of RRT Global cooperation with a large corporation bring significant advantages to his company.

“By cooperation with Sibur we get a huge industrial experience that enables us to develop technologies and solutions better fitted to the market demand. This advantage is often not given due attention, but we, on the contrary, see significant opportunities in it. Currently, RRT Global cooperates with several companies around the world” he said.

Another petrochemical leader BASF enjoys successful cooperation with Genomatica start-up. In 2013 BASF started the production of 1,4-butanediol based on renewable feedstock (renewable BDO) using Genomatica’s patented process and in 2015 the license was expanded to the Asian market.

Unlike traditional forms of cooperation between a start-up and a venture capitalist, a cooperation between start-up and a relevant corporation allows to minimize the risks associated with investing in a potentially promising idea where the key word is “potential” (but not “guaranteed”). While delivering services in the same field as the start-up the corporation gets an opportunity to more effectively and accurately estimate the market value of an innovative idea and to support its implementation.

Structural Changes Ahead: Outlines of A Coming Market

In the short term prospective, possibly in 2017, the global start-up market will face structural changes – both in terms of start-ups professional orientation and of funding mechanism. In the future science-based start-ups will dominate the market and will change our lives at a deeper level than the way of sending a text message or searching the restaurant for an evening meal. To be more concise this is already happening in the pharmaceutical industry, and the other scientific areas are to follow.

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About the Author

This article was written by Dominik Stephan of Process Worldwide. See more.

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Callum Connects

Norman Tien, Founder of Neuromath and Early Math Matters

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From a young age, Norman Tien, found his passion helping students as a math tutor and went on to translate that into a successful business.

What’s your story?
From the age of 14, I knew I would be in business for myself and started designing my company logo.

Growing up in a poor family, I worked part time while I was in school. That’s when I started tutoring and realised I had a gift to help students “see” mathematics. I delivered good results, and my students started to love math as well.

A turning point was when I was down with dengue fever and I realised I had to grow my business to the next level. I started a learning centre and that was the beginning of Neuromath. The initial years were tough as costs went up while my personal income took a dive. I almost gave up, but I pushed through.

Today, we have 3 specialty math enrichment centres managed and delivered by my dedicated team of teachers.

What excites you most about your industry?
“How to win” has always influenced how I position myself in the industry. I researched the psychology of learning, why some students are so naturally good at math, while others struggled. I managed to find the connection, and have always sought out niches to position myself so I can win.

In the beginning, I fused academic delivery with psychology to differentiate my services. Now I have a good team of teachers fully equipped with a psychological skillset.

In the next evolution of our business, we will incorporate technology into education in order to customise each student’s learning experience based on his or her needs.

What’s your connection to Asia?
I was born and educated in Singapore. One key driver why I started a business was, as a youth, I witnessed how my dad struggled daily as a taxi driver trying to make ends meet.

That said, I am very blessed to be in Singapore and to be given the right education. I see this as a very important factor to my success today.

Favourite city in Asia for business and why?
Singapore – well, for one, most of my businesses are here. Singapore is convenient for business and is very well governed. There are rules and systems that make the entire entrepreneurial journey more secure here. One big plus is the location: Singapore is a hub that allows us to connect to the world.

What’s the best piece of advice you ever received?
船到桥头自然直 –
There is a Chinese saying that when a boat goes near the pier, it will automatically align itself (with the current). It means we don’t have to worry too much, that things will take care of themselves.

A mentor once challenged me: “But who can guarantee you can even reach the pier?”

It is such a highly competitive world we are in, who can guarantee success? This is the ONE question that has been etched in my mind for decades. The Chinese saying always comes to mind when I am positioning, designing and strategizing for my business.

Who inspires you?
Mr. Lee Kuan Yew – The fact that he started ruling the country just like a startup. With limited resources, he was able to find a strong positioning to differentiate his country from the rest of the of Asia. With hardwork and proper planning, he transformed Singapore from a fishing village to a prominent financial hub in Asia.

Because Mr. Lee Kuan Yew positioned Singapore so well, government owned companies, such as Singapore Airlines, have emerged as the best in the world.

His story inspires me, spurs me to understand that success is not by chance but by design – every little step, all the strategies are all planned out. Not at all by chance.

What have you just learnt recently that blew you away?
My business coach, Marshall Thurber, shared with me the power of the “Trim Tab” – a small part of the rudder system in a ship. This Trim Tab, despite its small size, is able to influence the entire ship’s direction by turning it.

This metaphor helped me see that a man can influence the entire world if the right effort is applied. We are now living in an entirely new world, the way we commute with an app on the phone – that’s the power of the Trim Tab at work.

If you had your time again, what would you do differently?
I would embark on the same journey but I would seek a mentor at a very early age.

I have been through many hard knocks along the way, and I definitely could have shortened the learning curve if I had a mentor to advise me on the many aspects of entrepreneurship.

How do you unwind?
Driving down long highways helps me unwind, that’s when I let my mind relax and wander.

I love long distance driving and riding. My wife gave me a Harley Davidson Tourer for my 50th birthday and we intend to embark on riding holidays together in Asia.

Favourite Asian destination for relaxation? Why?
Hong Kong – I love the fast pace and the vibrance of the city. I love the cars there and it’s a very unique and exciting experience for me. And of course, I love the food there too!

Everyone in business should read this book:
One Minute Millionaire – this book highlights the mindset of an individual that is the key determinant for success in whatever we embark on. As long as we know we have a very strong reason why we need to do it, we can do it!

Shameless plug for your business:
I am the CEO and Founder of 2 Math enrichment brands:
Neuromath is a Specialist Math Learning Centre that helps students from Primary 1 to Junior College, empowering them with strategies, skills and a strong desire to learn and problem solve. We use technology to train students to avoid careless mistakes reclaiming 30 marks or more in Math exams and achieve their full potential in math.
www.neuromath.com.sg

Early Math Matters is a premier Mathematics and Cognitive Development enrichment centre for preschool children aged 3-6 years old. Through purposeful play and our renowned EMM approach, we help learners build a strong foundation for problem solving at an early age, and instil in them a passion & love for math that will stay with them for life.
www.earlymathmatters.com

We are actively seeking passionate teachers, entrepreneurs and investors who are keen to grow the education business with us.

How can people connect with you?
I speak regularly at workshops for schools, parents and platforms demonstrating the use of technology for peak performance in education.

Do contact me at
www.NormanTien.com

Alternatively, you can connect with me:
www.NormanTien.com/facebook
www.NormanTien.com/linkedin

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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