To succeed, founders must make critical decisions about launching and growing their companies. It can be devastating if they fail after heading too far down the wrong road.
At the start, it’s likely just you and your idea, no cofounders, no investors, and no customers. If you move forward, you’re committing to several years of work before capturing your rewards, assuming your concept is sound. You’ll also need to consider your objectives, skills, and motivations. Deciding to go or no-go is your first critical decision, a decision that will define your path for the next several years. You are the driving force behind your business. Your personal vision and goals must align with your future company’s business model to succeed.
Entrepreneurship isn’t for everyone; knowing what lies ahead is essential. In this two-part series, I’ll discuss what successful processes founders go through before committing to starting a company. Part 1 will set the stage from the founder’s perspective.
Part 2 will focus on the steps required to determine the feasibility of your concept, market validation, the importance of a business model, and team building. The ultimate decision to go needs to establish how well your motivations align with how your company will function and succeed.
Startups are the engine behind 90% of innovations
Successful startups know how to innovate. Their teams are passionate about developing ideas and building solutions, but passion, ideas, and technology alone won’t assure success. To succeed, startups need to attract customers, obtain funding, produce, sell, and distribute their products. Founders face a difficult decision: should I start a company to monetize my idea?
Anyone can be a founder – no one starts with all the tools
Founding a company is a personal decision to achieve a set of personal and business goals. Some want to have an impact, while others want to build personal wealth or lead an organization. Most successful founders don’t have an MBA or Ph.D.; none started with all tools. You can fake it till you make it, but not for very long. Some day you must deliver, go broke, or watch a competitor succeed. First-time founders should understand that most startups fail, not to be dissuaded but to study the reasons for failure in advance. With this knowledge, you’ll make better decisions and build a roadmap to avoid false starts and cash-draining dead ends.
Quitting for the right reasons is a successful outcome
The consensus is that 90% of startups fail to make it through year 3. I estimate that for every 100 hundred who try, only ten secure seed funding. Doing the math, you might conclude that a founder has a 1% chance of success. Factor in the smart ones, those that decided to quit for the right reasons at the right time, and the statistics aren’t quite as daunting. Focus on your market first. If you can’t attract customers, no amount of founder passion will get them to buy.
A Startup only needs five critical elements to succeed
- Solve a big problem or fill a vital customer need
- Build a solution that is so good that customers are willing to pay for it
- Define a business model that, if well executed, assures you can turn a profit
- Assemble the right team for the job
- Designate a lead founder who can effectively communicate to a wide range of stakeholders while leading the company
It sounds simple; why do so many fail?
Building a successful company is demanding, and startup hype is grossly misleading. It’s easy to conclude that all you need is a great idea to have VCs line up to provide funding. Investors don’t fund ideas; they invest in businesses that offer an opportunity for healthy returns. Ideas have no value without execution and paying customers.
There are no overnight successes. Most companies take years to develop. No amount of passion, motivation, and intelligence will make customers pay for things they don’t want or need. The optimism that drove you to start a company can also crush you if you let your passion and biases cloud your decision-making.
Much is written about the success and failure of startups, but very little of it honestly addresses the role of founders. First-time founders must learn on the job. There are very few programs that prepare founders to succeed. Startup Accelerators often skip over the stress and challenges faced by founders, yet the majority of factors leading to failure are human-centric and easily traced back to poor decision-making.
Founders don’t always get it right
Based on data from TechCrunch and Wasserman’s conclusions in “The Founder’s Dilemmas,” startups fail through a consistent combination of factors. Of the top 15 factors leading to failure, 13 result from poor decision-making or avoidance by founders:
- Founder misalignment and conflict 65%
- Lack of product/market fit 42%
- Ran out of cash 29%
- Not the right team 23%
- Lacked a sound business model 17%
- Ignored customers 14%
- Mistimed product 13%
- Lost focus 13%
- Conflict among team and investors 13%
- Lack of passion 9%
- No interest in continued funding 8%
- Founders didn’t have or use a network 8%
- Management burnout 8%
In Part 2, I’ll dig deeper into the top 7 factors and how to get them right.
Is starting a company right for you?
Precise reasons for starting a company, your vision for the future, and your ultimate goals are critical in defining your starting point. Consider these elements as the DNA you’re contributing to your future company.
You might think it’s time to be the boss and call your shots, but is it the right time for your product? Product timing is critical. If you’re too early, there won’t be a market; too late, and you run the risk of saturation or a new solution that makes yours obsolete before you start.
If you plan to build the next unicorn but intend to stay in control, you’ll need to rethink your objectives. Your motivations and goals are out of sync with the realities of building a unicorn. Which is more important, a higher degree of control or higher financial returns? Control vs. financial return decisions often conflict, causing you to reassess what’s important to you.
Your journey isn’t going to be a straight line. Motivations and goals might conflict with the realities of developing your business, markets, business model, and funding options. The process is more art than science and highly iterative. Educate yourself to understand the challenges ahead, be proactive, and make the best decisions at the right time. Be honest, keep your end in mind, and confirm that your concept and business model will get you to your finish line. Each step of the way, ask yourself, “am I willing to put a significant percentage of my net worth into this company?” You’ll know it’s time to move forward when your answer is yes but not before.
In Part 2, I’ll discuss the importance of talking to customers, why you need a solid business model, an honest assessment of the overall feasibility of your concept, and team building. I’ll also get into the top seven reasons startups fail and what you can do to mitigate them.