When Not to Build a Startup
7 Deadly Wounds For Startups
To build a startup is not at all easy. Many times it seems a lot easier looking from outside than it actually is when you are doing it. The-overnight-success syndrome is something that the media around us has created and it’s been enhanced by the fact that we tend to forget all those who failed to allow the success of the others appear.
I’ve seen hundreds of startups so far in different events and worked with quite many directly. The 7 situations I describe below are always in the top when it comes to understanding the causes of startup failures. That happens, I suppose, because startup founders don’t pay enough attention to them or they don’t consider them important enough to actually find solutions for them.
My advice here is not necessarily to stop building your startup if you stumble into one of them, but first of all to make you stop and think seriously about them. And I am sure that if you pay close attention to these 7 problems you will take the right decisions.
A few days ago I looked at these matters from a different perspective in this article on the fundamental things first time founders should know.
1. You cannot express clearly the problem you want to solve & who’s got it
The primary cause of startup failure is building something that has no market. The underlying cause of that is in many cases the problem the solution wants (and was created) to solve. But the thing is that if you as an entrepreneur (as a founder) cannot express what that problem is, it’s almost certain that you don’t understand the problem, if indeed there is one. The second part of this issue is being able to understand who exactly has got that problem and how those people deal with it today.
2. You can’t find enough people experiencing the problem
To build a great business (and change the world, as every high-growth startup should aim at), you need a great market.
A great market means a few things:
- clearly defined customer segments
- experiencing a strong enough problem to make them do something about it
- overall big number of people who are able to buy or use your solution
Marc Andreessen, picking up Andy Rachleff’s vision, famously boiled this down to the “market always wins” credo, where the possible success is at the intersection between a great market and a great team.
If you are unsure about what different types of market you can have, browse through the presentation below:
3. The problem doesn’t make those who have it take action to solve it now
Changing behaviours in people when there isn’t enough motivation on their side is very difficult. But a surprising number of startups head with their solutions straight into this wall. What usually happens is that they struggle to get traction and engagement until one moment when they either pivot or enter the dead zone.
What a startup founder needs to do before building anything at all is to deeply understand not only what the problem is but also how deep it affects the lives of those who have it, how much it ‘costs’ them and what kind of cost that is. This is critical for products that create (what it seems) new markets, as those usually have a strong behaviour hypotheses that needs to be tested and validated.
4. It’s hard or very expensive to get access to your customers
We are in the same area of crossing the gap between our solution and a possible market we image for our startup, now looking at the practical ways to reach that market. I’ve seen this countless times: you have a team of very smart startup founders who created what seems a fabulous innovation but who have to clue about how to get that innovation in the hands of those who should user it or buy it. No clue means: they don’t know where those people are > therefore no idea on what channels to reach them > therefore no information on how much it will cost to acquire and convert them.
But once you look at CAC (cost of acquisition) and TOC (time of conversion) and compare them to your CLTV (customer lifetime value) & cashflow, you may draw some interesting conclusions regarding the financial viability of your startup offering. I totally agree with what Peter Thiel says about here:
Poor distribution — not product — is the number one cause of failure.
5. Your solution cannot be defendable or you cannot create difficult-to-compete-with advantages
The point of a business is to serve a market and capture as much value as possible from that market. When the market is great, you will always have competitors. And a competitor’s scope is to get as much of that market for themselves (and implicitly take it away from you). That is why any startup need to find means & ways to defend its market and create advantages that are hard to overcome. Being able to create these adds a very strong layer of value (that is part of the ‘secret sauce’ investors need) and make your business stand better chances to become a very strong player in its market.
6. Your solution needs tech innovation but you don’t have tech skills to create that you have
Technical talent is scarce and, to say the least, expensive. That is why many tech startups have only non technical founders and they struggle to recruit tech talent. But that in itself is not be biggest issue here; the critical situation is when your non tech team approaches a problem to which only an innovative tech solution might be the answer. In such situations, if you cannot get a tech co-founder or a strong CTO very early in your team, it will be very problematic to build something valuable and to move fast enough in the product and market development so that you have real chances of success. My suggestion: if you cannot recruit a talented and entrepreneurial tech co-founder or get a tech company as your investment and development partner (we provide such solutions at Startcelerate), you should move into creating a business where technology does not define your company.
7. You have little or no first hand understanding of your core customers
Again a very common situation that results in monsters: founders who tackle problems for people they don’t know and don’t really understand. To get beyond this means more than ‘getting out of your building’ — it means getting among your core targeted customers in such a way that you understand how a day in their life looks like, what is important for them, how they take decisions, who and what influences them and what’s their drives and hidden wishes.
So, these are the 7 wounds that kill many startups. You most likely have also other experiences. It would be really useful for all the entrepreneurs reading this blog to hear about them: please leave a comment below and describe them.
If you are experiencing any of them and you look for solutions, I’d love to help. A few weeks ago a created a lean mentoring programme for smart and ambitious startup founders where every week I select one startup for a few free mentoring sessions and I share everything I know on startup development and growth marketing.
Originally published at www.gabrieldombri.com on April 15, 2015.