A serial founders’ introspection on failure and the criteria for startup success
Nature offers a great analogy for our role as founders — like all things in nature we must grow and contribute to provide value in the world. Just like a tree that stops growing and providing shade and food; if we are not adding value then our startup will be consumed by competition or return to the dust through apathy and indifference. Nature supports the circle of life — thinking spiritually, the soul is the founder in search of where it’s passion can add the most value in the world. When a startup fails the founder contributes that knowledge to the next startup birth and others around it until the value and contribution stands out in the forrest to provide shelter and food for all that surround and the world is a better place for it’s existence. We only truely die as a founder if we stop the circle of life by not growing or contributing or failing to startup again.
F*ckup Nights are awesome events for entrepreneurs to get together and share their biggest failures in the hope that each will learn from each others’ mistakes. Participation is a great opportunity for both contribution and learning. In preparation to present at a f*up night, I have collated a set of personal criteria I have developed to judge my own startup ideas. I have come to this from many failed startup attempts and witnessing the success and failure of others over a 20 year period. I hope this is useful to other entrepreneurs in assessing their next venture.
All great startups have a “Tim Tam sandwich” —
Have you heard of Tim Tams before? These are iconic Australian biscuits comprise a biscuit sandwich covered in chocolate. I am using Tim Tam for an easy to remember acronym (not suggesting a change in founders choice of treats).
In assessing a startup idea’s likelihood of success ask the question: does your startup have a “Tim Tam” sandwich?
- Timing — why now? Is it too early? is it too late? Are there trends, perhaps a convergence of technologies that make this the right time for your startup?
- Total addressable market — in it’s largest incarnation of the vision - Is this market a 1B niche or impact 1B people? Is this big enough to get VC funding or have a significant positive impact on the world?
- Total immediately accessible market — are you from the domain? Can you call 5 people right now that are experiencing the problem? What is the smallest possible niche you can address? Can you serve them better than any one else? The TIAM is critical to early adoption and to extend your startups’ runway
The ‘Tim Tam’ assesses both the now and the later. Ideally the vision should be both large and small scale within one theme. Actually implementing the larger vision may take years so there should be a bite size version that you can immediately start and provide value immediately in a niche. Applying lean startup methodology will validate the idea if you can achieve early traction on your MVP (Minimum Viable Product). Reconsider your idea; or whether you are the right founder. If you cannot call at least 5 people who have this problem in your niche market to start customer discovery interviews and if you cannot get traction in the immediately addressable market (TIAM) then you have no hope of winning the TAM.
My biggest “f*ckup” on many levels
Time in history is absolutely critical — Timing is the first critical factor in the Tim Tam sandwich.
In 2006 I founded ‘Emotf’. I had developed it for far too long (3 years) before launch and it comprised 7 components of technology. Two years after canning the whole business I witnessed a small startup in my niche launch and get investment off just one component! Followed by the next year, two or 3 other components appear in platforms like Foursquare and Google. Most recently one in Facebook (the Emoji responses to comments) and another in feedback systems for hotels and restaurants. I don’t think for a minute that I had the idea before these giants. I suspect they always shared the same vision — but their mindset and approach was correct: they build the core platform that provides a clearly understood value first and then introduced the features of their vision over time. Most importantly, each of these technologies had a ‘right time’ to be brought into the market.
This seems obvious now in the age of lean startup but as a naive, ambitious entrepreneur I could not conceive of Emotf being just one component. In my mind it had to be the whole vision. I could not see users getting any value until I built the whole platform with all it’s components.
The lesson #1: Apply lean startup methodology to the smallest version of you vision and get early traction. Be confident in that the small version of your idea provides value. Know the vision and be selective on who you share this with. Use it to onboard co-founders, motivate employees but execute NOW on the minimum viable product and prove your hypotheses one-by-one.
Lesson #2: Maybe the timing is simply way too early? Test each component or byproduct of your startup on different audiences in different markets. If you have seen the future and know it is inevitable, ask yourself: which part of this can I bring to market now and to who will it provide most value?
Lesson #3: Set your startup quarterly review dates. As a “rule of thumb”, if after the 3rd review (9 months since starting up) you have not proved your most critical hypothesis and gaining encouraging traction then the timing may not be right and re-evaluate if this is the best timing for your startup or perhaps it is time to pivot.
The startup success criteria continued
If the Tim Tam is not there then you may as well stop now. Continuing to assess I look for:
- Value — Is your solution 10x better than what people are currently doing? Or are you just clipping a ticket for an incremental improvement? To know for sure — If you were to take your product away from your users would they be screaming to have it back or switch back to their old ways or a competitor? if not, review the TIAM.
- Frequency — Is the problem daily? weekly? Frequency affects how often the transaction occurs for revenue but also for marketing. If the problem is not experienced often enough perhaps your product is forgotten, cannot be habit forming or your marketing falls on deaf ears. If the (Life Time Value) LTV and TAM are big enough this is less important.
- Founding team — why you? “You got skills” but what is your superpower that makes you the best in the world to solve this particular problem?
- Low friction — What are you asking your customers to do in order to receive the value of your product? How many hoops do they need to jump through? Too many and you will lose them or spend too much money nurturing.
- Virality — Is your product inherently viral? The network affect can work both for or against you. In the early stages, if your product relies on other users being on your platform to receive the benefit then friction is a barrier. However, like in the case of DropBox if the receivers immediate value exceeds the perceived cost of friction then you might just be onto a winner as the the receiver too becomes an advocate for your product. Viral products lower the cost of customer acquisition giving you a longer runway.
- Secrets- “What important truth do very few people agree with you on?” This is the contrarian question Peter Thiel challenges us with in the opening pages of his book “Zero to One”. Is your startup an incremental improvement or breaking ground that creates a market of its’ own without competition? Google, Facebook and PayPal did just that. Do you see a future world where your product impacts people in ways that if you attempted to explain others right now that they may not quite understand? sounds like you are onto something!
“People don’t buy what you do, they buy why you do it”
— Simon Sinek’s “Golden Circle”
- Vision & purpose greater than ones’ self , ones’ capabilities — Is the vision big enough that you don’t know how it is going to be possible yet it excites you to be challenged that way? — A vision of this size, bigger than conceivable motivates us to do extraordinary things and bring in smarter people. This also shifts the focus from the founder and the product to the customer. When the customers see the vision, they become your biggest fans and loyal to your purpose.
In the ‘failure’ context of this article, the last point deserves expansion. If our vision is too small, we succeed at nothing great. We succeed, but the world is not a better place and we are still the founder we were when we started. That is really a waste of time and resources. True entrepreneurs always “go big”! By going big — we will most certainly fail — we may fall flat on our faces, or fall just 10% short. Either way, in failure we become someone greater and create something greater than had we dreamed small. If you carefully observe the worlds’ top inspirational founders you will see this pattern over and over again.
Your startups’ score
Give one point to each of the the areas that you scored a confident ‘Yes’ to.
10 out of 10 ?— Congratulations! you are in good company these are the characteristics shared by many unicorn startups. 7,8,9 out of 10? Awesome! your startup likely funded or all the support it needs and is on the way of growing into a magnificent sequoia tree. If you have a score of 5,6 perhaps your startup will become a lifestyle business. Less than 5 — I might be wrong, you may just succeed through grit and determination; however, you are likely on the way to significant pivot or racking up a failure on your journey — Accept it. Fail fast and move on once you feel there is nothing more for you to learn.
To be fair, the “Tim Tam sandwich” should be weighted much heavier than all the other characteristics. Failure to get a ‘yes’ on all three of the points of the Tim Tam means you are going to need to be patient, need a lot of funding or partnerships and access to networks for your startup to succeed.
“Success is not final, failure is not fatal: it is the courage to continue that counts” — Winston Churchill
Failure to start
All entrepreneurs have battle scars. Every single entrepreneur should be celebrated for they have been game enough to step into the ring. Entrepreneurs get back up, dust themselves off and get back in the ring time and time again. They know in their heart that they only get better through their failures (Take a look at Elon Musks’ long list of failures). Fail fast, fail often is the mantra. Failure to start, failure to talk to a customer, failure to take the risk is the only real failure possible.
Why startup in the first place?
As entrepreneurs we wear the risk on the world’s behalf to solve a problem that we believe is justifiably big enough for us to invest our resources to provide value in the solution. We make the future here now. We do it because entrepreneurship is the pinnacle of human existence. We love the challenge and for who we become and what we create on the journey. Our reward is paid when we impact the world in positive ways.
The above 10 criteria are a detailed guide as to whether to startup in the first place and the likelihood of a startups’ success. I’ll leave you with Reid Hoffman, founder of LinkedIn’s formula for a startups social impact. I think a startups’ valuation can be boiled down this simple formula:
Number of people touched x depth of impact x time = social impact.
- Reid Hoffman