13 reasons startups fail.
Real-Life Startup Post-Mortems - final part.
This is a 4-post series to not just learn from startup highs, but also the lows:
below is the final part bringing the stories together which was my presentation at SXSW
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Here is the full SXSW slide deck.
To start with the stats:
9 out of 10 startups fail
7.5 out of 10 VC-backed startups fail
<1% of startups become unicorns
What Kills You?
Simplifying it, there's just one mistake that will 100% kill your startups:
Not making something users want.
If you make something users want, you'll probably be fine, whatever else you do or don't do.
And if you don't make something users want, then you're dead, whatever else you do or don't do.
Here are 13 things that are still likely to kill you, even if you make something users want.
1. Obsession
Only go in if you REALLY care about the industry and customer.
Building a startup will come with the highest highs and lowest lows and you will lose your motivation if you’re ambivalent to your customers.
Equally, some industries can be incredibly hard to crack if you don’t have the inside knowledge, so only start if you’re deep in it.
At Startmate, we call it Founder/Problem fit - how much does the founder care about the problem they are solving?
Thought-Wired: Obsess over customer problems and not your tech (if you’re building tech). What you’re building can and will change, what your customers need stays largely constant.
Keylead Health: Founding team had no experience and was not fit to solve the problems. You need deep industry experience in health to change the industry.
Thought-Wired: On the flip side, be realistic about when it’s time to wrap things up and move on. There’s a balance between persistence and beating a dead horse while doing some serious damage to yourselves as founders personally.
2. Cofounders
Co-founder break-ups are very common and normal.
But also deadly.
As much as you love each other on Day 1, always get a vesting schedule.
Contrary to popular belief, this is not just for investors, but most importantly for the founders to give companies a fighting chance if they go through a co-founder breakup.
I wrote a longer blog post - HERE - which is still ranking on Google 5 years later.
It covers all the questions worth asking before getting cofounders and what to do when going through a co-founder breakup.
Keylead Health: Be more careful in finding cofounders.
Storipress: All Founders Need Commercial Skills - Non-commercial co-founders slowed execution. External advisory is crucial if a founder lacks commercial expertise.
3. Problem
Either side of the spectrum can kill you:
Tackle a problem too small.
Tackle a problem too large.
Small problems customers don’t care enough about. Large problems are too overwhelming if not broken down.
Shirking from big problems is mostly unconscious. We don’t even think of big and small ideas and then decide to pursue smaller ones because they seem safer. Our unconscious won't even let us dream big. One solution may be to think about ideas without involving yourself.
What would be a great idea for someone else to do as a startup?
Keylead Health: Stay away from problems that are hard or slow to validate and iterate.
Keylead Health: See early positive signals but don’t read too much into them (very hard to do while keeping a healthy optimism).
4. Build it, they will come
Way too often founders hide behind their laptops and code. Hacking things together with statements such as “if I get this version or feature out, then I’ll get customers”. It is never the case that customers magically sign up just because you had a new release.
Don’t assume you know the answer.
Whilst building is important, taking to customers whilst building is crucial.
You’ll quickly learn whether
(1) you’re building the right stuff (= product work) and
(2) who you’re building it for (= marketing/sales work).
Mint: Do things that don’t scale, I basically lived in nursing homes and all our unique insights came from being close to customers.
RefLIVE: Understand unit economics and create distribution strategies while building product. Always try something hard, but know when to quit earlier. We probably stuck at it two years too long.
5. $ commitment
Way too often I see founders release a free version in the world and take that usage as an indicator for future customers.
If someone offers you free lunch, ofc you will say Yes.
It is when you ask for someone's credit card details even just for $1 that things become real and you start understanding whether the person cares enough about the problem you’re solving.
Thought-Wired: Try to do hard meaningful things if you have the opportunity & safety net to do so, even if they seem too hard.
6. Sales Cycles / Unit Economics
Be real about your sales cycles.
B2B and B2G take a long time. Plan for it. Even more importantly couple the sales timing, expected revenue with the cost of getting the sale, does the maths stack up? The Unit Economics is something founders deceive themselves too often about.
The Unit Economics can be poor at the start, but you need a believable future path to run it profitably otherwise you don’t have a business.
Mint: Start with smaller sale cycle customers, mid-enterprise sales requires complex sales processes and knowledge and will kill you if the core business doesn’t support this expansion.
Thought-Wired: Avoid combining building a never-before-done technology and applying it in a very complex multi-stakeholder market, especially as your first company!
7. Pivots
The more common problem here is not listening to customers and pivoting soon enough. Don’t be afraid to change if that’s what you hear from who you believe the right customer is for your product.
More rarely, but just as deadly is throwing out everything every 1-2 months to restart from scratch. Build on the insights and the foundations you have.
Mint: Kill features faster and more dramatically.
Storipress: Agility Reduction Creep is Dangerous - prioritizing short-term goals weakened our long-term agility, slowing down our strategic pivot and limiting our ability to recover.
8. Advice
Ironically, for this blog post about advice: what kills you is advice.
Don’t listen to anyone - and you piss everyone off and don’t find supporters (which is still better than #2)
Listen to everyone - and you get paralysed trying to please everyone, you try to do it all and get stuck doing everything poorly.
This is true for mentors and investors in particular.
Find the few people who really care and don’t be afraid to say “right now is not the right time for this piece of advice” and find the 20% of advice you want to take on board.
Storipress: Pick investors who have experience in pre-seed.
Thought-Wired: Surround yourself with mentors and fellow founders who care about you and what you’re doing so you can ask for advice both practical in your venture and more personal on how to be a founder and deal with the pressures. Earlier is better.
AsyncBrain: Remeber that every product and market is different.
9. Raising
This one is one of the harder ones to control.
Raising too little - when you do raise, make sure you raise enough to get to your next “unit of progress” = the next thing you can prove to derisk your business. It needs to be a “unit of progress” that unlocks the next investor to go in and back you with more money at a higher valuation.
Raise too much - just as deadly. Don’t go out spending it all. Companies get comfortable too quickly. More employees mean more problems, more communication, more overhead and it makes you move slower. Depending on how proven your customer problem is and the need to pivot, changing directions becomes increasingly harder the bigger the team.
Keylead Health: Do not raise money until you know exactly why you need it and exactly how much. It has to be the absolute bare minimum needed.
Mint: Always have 6-9 months runway planned.
10. Spend too much
Related to “raising too much”.
After a funding round, founders get quickly hire-happy.
It will bite you twice - (1) increase your burn and (2) slow you down.
11. Hiring - too fast
Have a really high bar on who to hire.
Do not give in to the time pressure. Hiring the wrong person will cost you so much more in $$ and in lost time.
Three hiring suggestions:
don't do it if you can avoid it,
skew towards equity over salary, not just to save money, but for long-term commitment and alignment
at first, only hire people writing code or going out and getting users, that’s the only people you need in the early days.
12. Timing
If you think the above is hard to control, this one is impossible to control.
But you can ask yourself if the time is ripe for what you’re building.
Why is now the precise time in history that what you’re building is possible?
Why wasn’t it possible 2-3 years ago?
Why will it be too late in 2-3 years?
Storipress: The Most Important Requirement of a Highly Contrarian Thesis isn’t its Correctness: It’s whether others will see its correctness at scale within your investment horizon. The market can remain irrational longer than you can stay solvent.
13. Too slow
What’s the definition of a startup?
It is not about being new, innovative or small.
It is all about growing fast!
Don’t compare yourself to corporate culture shipping fortnightly, what if your challenge is to ship multiple times a day?
Mint: Move faster than you think you need to.
Get the Basics Right
Storipress: Startups Die from Suicide, not Murder.
Conclusion
This blog post can be a bit depressing because anything can kill you.
But if you’ll only remember one thing, make it this:
If failure is poison.
Customer conversations are the anti-dote.
PS: credit and kudos to a great Paul Graham article from 2016.
Excellent x4 part series.