10 Principles For Not Killing Your Startup
Everywhere you look these days, people are attempting to start innovative businesses and nonprofits, working on putting team, product and financing together, and generally trying to change the world - or, at least, their world - through entrepreneurship.
Meanwhile, I strongly suspect that the mortality rate of tech startups is as high as ever (no rigorous scientific tracking there, just common sense and observation - please do share stats if you know of some). In any case, one failed startup is one too many.
Guest author Greg Boutin helps startups and early-stage ventures defy a certain death, through strategy and marketing services. He blogs on entrepreneurship and on semantic technologies. He thanks Arnold Wytenburg, William Mougayar of Eqentia, Fabien Tiburce of Compliantia, and Ceara Scullion for their priceless input on this post.
So, wouldn't it be great if we could align on a guiding set of principles on how not to kill a startup? Think Hippocratic Oath for entrepreneurs - just not strictly an oath, and more in the spirit of "Doing Good" than "Doing No Harm" (or "Doing No Evil" for that matter). After all, unlike humans, doing nothing to a startup is a sure path to death, so we need to be more proactive.
And yes, I know, blanket business principles can sometimes be silly (if you haven't yet, I recommend you read the Halo Effect by Rosenzweig), but as the recent book The Checklist Manifesto argues, situations can also sometimes be improved with the introduction of simple, field-tested guidelines. I can personally tie every startup failure that I know of to the principles below not being respected.
So here is a rough copy - or should I say an alpha - of a list, based on inputs from other entrepreneurs, and my own experience as a startup consultant and entrepreneur. Please make your own suggestions for changes and additions/subtractions in the comment section. If I get many responses, I'll compile the best submissions into a beta version to be published in a follow-up post.
And of course, our list will always remain in beta. Without further ado:
How Not to Kill Your Start-Up (v 0.1)
- This one's obvious - watch your cash flow. Whether your plan is to fund your startup through investors or through revenues, plan ahead. Every other principle below flows from this simple one.
- Spot a real problem and concentrate your efforts on solving it. Do not disperse your time among too many concurrent, unrelated pursuits.
- Identify your target market(s) and collect market feedback early on. Seek to understand your prospects and customers through first-hand observation (how do they currently deal with the problem you are trying to solve?) and continuous inputs.
- Design and develop a minimum viable solution as fast as possible. A minimum viable solution is anything you can extract a firm commitment from a potential client or investor with.
- Surround yourself with dedicated, effective people. Build a small team and a pipeline of strong players, and nurture a circle of supporters with knowledge and/or financial resources. Incentivize everyone intelligently (if nothing else, respect can go a long way) and reward them fairly.
- Read Crossing the Chasm. Appreciate the difference between early adopters and mainstream prospects. Know which one you target, and do not confuse technologies and products with whole solutions. Only offer whole solutions to mainstream leads.
- Consider other sources of competitive power than just technological sophistication, e.g. superior customer experience or service, exclusive distribution partnerships, or other market-based advantages.
- Have a plan for cutting through market noise. Know how prospects will hear about your solution. Understand that building a great product is required but rarely sufficient to build a great business, it needs to be marketed one way or another.
- Invest time in selecting and testing a business model, and be open to changing it based on new learning. Choose one you are able to sell to investors if you go down that road (even if it is based on traffic only, à la Twitter, have a monetization model you can justify).
- Be creative and resourceful in meeting your objectives. Seek cost-effective solutions, and do not give up in the face of adversity, but seek to learn and adapt your approach to overcome obstacles.
And ultimately, remember that startups sometimes need to be killed, for their own good (or yours at least). Do not fear failure, because that is the fastest road to failing as an entrepreneur. Just rinse and repeat.
Photo by B S K.
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4b. Prove your concept early on. Everyone will tell you what a great idea it is, but will they pull out their wallet when the time comes?
Could have ended at #1, not that 2-10 aren't good points. I would add at #3: "Talk to your customers! Listen!"
I would add:
2 b Prioritize features bases on how important is that feature for the customer and how much is the client satisfied with the way that he actually solves the problem. Try to keep the budget in mind and choose those features that add the most value to the client with the less resources possible.
7 b Business Model Generation book is a great source of "out-of-the-box" business creativity, and offers great tools to analyze and improve your business model.
10 b.. Start with fixed costs as cheap as possible.
Excellent start, those are all good points - and yes Eric, #1 is the key driver, obviously, but as it's a little limited in terms of how we get there, I thought talking about the "sub-drivers" could help.
Ok, we need more to strengthen this list. I don't think it's solid enough yet. Entrepreneurs please share your insights so I can write another post with an even better list!
1) Focus. Don't be all things to all people.
2) Stop chasing after your competitor's features.
3) learn to accept failure and move quickly.
4) launch with the basics, it's ok. You won't look stupid launching something simple.
5) Fire your slackers right away.
6) You'll get enough sleep when you're dead. Saturdays are Fridays with better traffic.
A good example of this is all the frenzy around the iPad features in the blogsphere out there: The iPad (which essentially is a business venture) will be a good case study for points 2,4,6,7,8,& 9
Whilst many people were disappointed about this "big ipod touch", Apple is financing further development and features from the cashflow coming from those 90% of people that think of a box when they hear "Pandora", not the multitasking ability of a headset OS.
Just my 2 cent
Once you have a solution to a problem in the market, then focus on marketing in order to let as many people in the market segment know you have a solution to their problem.
Building a solution is a minor challenge compared to marketing of the solution.
Selling and getting paid is an even bigger challenge.
My 2 cents:
- Dont just get customers, create success stories
- Work backwards a plan to survive and grow in whatever funding/cash flow you have, plan for at least 12 months
- Dont run after every prospect, do STP and chase the most attractive segments and leads
- Sense opportunities fast and evolve
I think this is a great post - Basic tips that entrepreneurs should know, but can sometimes completely overlook.
I'd also add that, after you choose the right people for your business, to give them the right tools. If you're a more creative business, give them all MacBooks. Make sure that the tools they have at hand can empower them to be more successful, which will increase the success of your business.
Hi Greg,
Great inputs there especially on including the identification of a target because this is basically one aspect where you could make or break your business from the start - without knowing where you're going to head off in your business, you can always struggle to find how you could cater your audience or simply yourself to be able to give effective information. Starting up a business is the most crucial for entrepreneurs and it does take time to plan, ask for help and act the action steps out.
Great start, great feedback. My input for consideration.
1. when entering the market, look ahead and not behind. Many will enter behind you and "chase" you. Stay focused on the path ahead and the goals you set yourself.
2. Set progressive objectives/goals. Don't move to the next one until you've banked the one before. This will keep your growth real.
3. Ask your bank manager, before you start, if he'll accept "great ideas" and "opportunity" to pay bills. Everyone will try trade with you on these, but if it wont pay the bills be cautious.
4. Beware partnerships and alliances when you small. They need lots of effort and smart lawyers. If you need to create one, make sure it's going to last and work for you.
5. Dont enter unless you know how you'll exit.
Hope that helps...will keep checking back in for updates!
Great post and comments, thanks a lot!:)
I have one question to all of you - what do you think about having good mentor as early as possible, in order to not miss important strategical points, which an innovative, but still young entrepreneur could miss?
I still think the really successful startup is the one managing to put the innovation and the strategical experience work together
Hey Greg,
Congrats on the artricle!
Here's another core principle many entrepreneurs discover too late: Pay close attention to assetizing the business.
Investors aim to put their money into viable businesses. They measure viability by comparing asset value with cost, risk, and return on investment. Regardless of what you offer to your customers, it is the business as a whole which contains the value that makes it investable.
In my experience, your chances of success become slim to none if the investability of your venture doesn't measure up. This is crucial even if you plan to self-fund, since you'll be investing your preciously valuable expertise, time, attention.
Cheers, Arnold
Thanks Arnold. Interesting insight. I think it would be good if you could clarify what you mean exactly by "assetizing", as not everyone will get it. And how investors would measure that on start-ups whose assets are mostly in brand goodwill, for example.
Sveti, I think the balancing act you are looking at is between getting the mentor early enough that she can help you avoid early mistakes, but not too early that she loses interest in your venture. Generally, I'd think the earlier the better, but for some high-profile mentors, it is sometimes better to wait a little till you look a bit more credible.
Ultimately I think you should look at your advisory board as your mentors, and get a mix of people that can both open doors and give you good advice.
Andres, Stephan, LEADS, Sumeet, Dana, Tyrone and Justin: all excellent advice, thanks.
And I still need more to make a new post! I'd like to get to the most fundamental principles, leveraging crowdsourced wisdom.
Greg, to your last point on "leveraging crowdsourced wisdom", here are my thoughts:
The importance of developing a knowledge sharing capability/platform that enables your customers and/or community to feel engaged is critical to a start-up's early success. Not only does this provide a mechanism to put out early fires before they proliferate, it becomes a tool that can be converted into an opportunity to enhance product development, ensure transparency, & boost overall credibility. With this in hand, start-ups will maintain a greater ability to "see the world through the eyes of their consumers" and, in turn, create better solutions to their problems.
Great advice on the whole!
@Gerg @Lee: thanks for your comments, btw mentioning the crowdsourced wisdom, have you seen that: http://www.brainpickings.org/index.php/2010/03/10/crowdfunding-for-creativity/
I read it today and felt really impressed as it seems a new era is coming for the startups!:)
Great list of advices!
My approach is pretty simple though:
Make a well shaped business plan.
Clearly target your niche market.
Create more than one way of income.
Set up goals you can accomplish.
Make it simple!
Hi Greg,
The essence of the entrepreneurial task lies in transforming ideas and opportunities into assets that are tangible enough to be investment-worthy. In this context, an asset is (loosely) something which has the ability to produce future value in a sustaining, predictable way. Almost always, a start-up's assets are soft but they definitely need to be more than just "goodwill". In this sense, an investable asset is something that either delivers or directly contributes toward the delivery of meaningful revenues and profits.
I recommend entrepreneurs to consider investors as a specific type of customer, and the product they are selling those investors as being a mechanism for realizing a healthy return on their investment. "Assetizing the business" is simply a way of saying that you need to find ways of expressing the value of your business in terms that allow investors to compare your offering to other investment opportunities. In other words, you need to pay just as much attention to the value proposition you offer investors as to the products or services which you offer other customer segments.
Simply having a kick-ass technology doesn't cut the mustard. You need to have an elegant and predictable way of turning that technology into a meaningful income stream. So too having thousands or millions of customers doesn't mean much unless you also have the ability to generate profitable revenue from these. Often in start-ups, your main "asset" lies in having the unique ability and unassailable capacity to execute on your ideas while staying ahead of competition.
One way of making sure you don't lose focus on this crucial aspect of your start-up is to always have your exit strategy in mind since this is how both you and your investors will realize the returns you are seeking.
I hope this helps.
Cheers, Arnold
Adopt agile project management methodologies and get your solutions to market ASAP. Get feedback (#3) from real users / customers, and evolve quickly to the ever moving target.