Black Diamond Series: Don’t Make Your Startup a People Problem
90% of startups fail, as Investopedia stated back in 2019 — they are running out of money, they do not attract funding, and/or they lack a proper business plan according to CB Insights research analysis of 390 startups. But behind these top three reasons, could it actually be a people issue? According to Professor Noam Wasserman at Harvard Business School, 65% of the failures are related to people. I wrote about this topic in an earlier article published on Medium, but with this topic being so important I sense there is more to say about this.
I get asked by people, journalist, investors and others — what’s the most important asset? For me that is clear — PEOPLE. Let’s go back and have a look at those top 3 reasons: Running out of money — the people, the co-founders and core team might have underestimated the efforts to reach the next milestone. Perhaps they have made poor planning (third reasons was a lack of a proper business plan), not understanding the user needs and lacking their feedback, causing them to stall and not able to pivot. Investors look and scrutinize the team, so people again might one of the main reasons why the startup is not fundable.
This is fundamental in my BLACK DIAMOND Scaleup Strategy. Having had key roles in eight startups and been an advisor and mentor to about a hundred other startups I have developed my playbook, in order to build successful companies (not just startups, but especially the scaleups and grownups).
Look at your team of co-founders and other in the core team. What are your skills and competence? Are you complementary? Are you diverse?
A key advice for launching the startup properly is to do more research upfront. You might be impatient and eager as an entrepreneur to get going, but see the research as part of the ideation and product creation phase, pre-launch of the startup. One could actually look at industry and manufacturing best practices — the product creation and design phase takes 5% of total cost, however it has an influence of 70%. This goes back to our startup — be careful in the early phase to detail out the problem you are solving, the value you are creating. And ensure to have the right people onboard.
In the Black Diamond model, my playbook built from years’ of experience, work in building a variety of startups, engaging in innovation ecosystems, scaleup, commercialization and globalization, I look at how the TEAM is being setup to be potent and talented to take on the innovation with impact and disruption challenges that is going to change common practices and mindsets. The proper capabilities, adequate manpower resources, the right skills and right mentality are key. This building block is essential to make your startup survive the initial two years and beyond.
At the same time, you need to stay alert, agile, ready to pivot and be extremely hands-on. Most of the time you will have to do risk assessments on the fly, but don’t do everything by yourself. Engage your team, advisors and other stakeholders to support you, so you can get to the good solutions. This also means that you will need to assess your team capabilities continuously - your demands change, your company evolves and different skills and people are needed, depending on what phase you are. Startups are demanding, and as a founder this will also be a mental challenge. Ensure that not all the decision making has to go through you, you can be hands-on, have the proper risk management and do the right things even without micro-managing.
As a founder and leader, a key task is to communicate clearly and regularly to the team. Even though startups are people oriented, you need to build some structure and processes, to make it less people-dependent. Ensure that the company KPIs and team OKRs are supporting the BIG IDEA and COMPANY STRATEGY. This way everyone in the team will understand their influence and importance in terms of building the company towards success.
Of course, people is not the only main parameter in making a successful company. But it is essential in building a foundation for what can become a success. The product & technology, marketing & sales as well as funding & finance needs to be put together and with these four boxes ticked off, you can go for the strategy implementation with confidence in your execution.
More about these topics in upcoming articles.
Best of luck in your company building!