The # 1 reason entrepreneurs fail and what we can do to stem the tide

Right now you’re probably thinking timing, runway, money management, focus, team, and more.

The over arching KPI together is ego.

I do not mean the good ego that drives us to proclaim to the world “I am going to change the way people receive primary care” or “I will bring quality local sports reporting back to the uber fan”.

I mean the ego that believes expertise in one functional area translates to the ability to build a business. The ego that allows any of us to believe investors are giving us money to figure it out on our own.

There’s a reason why team is so important during the fundraising process. It’s not just about experience, and experience working together, it’s about the balance of skill-sets needed to be one of the 10% that make it through the fire.

The type of ego, “I can do it all, I know it all” is the ego that leads to;

• Building product teams for content and editorial companies
• Building large engineering departments for an unvalidated product — market fit
• Expanding market verticals before one vertical is validated, assuming that technology is the only function of serving a new market.
• Spending large budgets on marketing before the CAC to LTV calculation for specified product(s) — market(s) — message(s) has been validated
• Scaling infrastructure (inventory, people, space, etc) before the demand curve demonstrates it will support the projected supply curve
• Executing against sales and marketing plans with large budgets before channels have been measured against the CAC — LTV and time to revenue formulas

These are just the tip of the iceberg. You may be looking at these and thinking that getting these wrong is just a matter of paying attention to data. That any smart entrepreneur can figure it out. Well if that’s the case, why did 5 companies that didn’t get it right just pop into your head? They were smart, had a great idea, what you believed to be enough money. So what went wrong?

There’s a balance between ego and openness. As a community we need to hold ourselves more accountable for our bad or self serving advice (due to lack of context), cheerleading entrepreneurs (current or future), and creating the sense of entitlement (no accountability) that leads to bad decision making.

How do we do that?

1. Invest in sectors where you know what the ideal team looks like at each stage
2. Require that portfolio companies with gaps, fill the gaps within a specified time frame
3. Require more active reporting on agreed upon KPIs, not smoke and mirror, or vanity metrics (thanks Eric Ries, stole this from you)

This may sound like micromanaging, but we are after all investing money with an expected return. Providing support and requiring accountability are the two ways to be responsible with any investment of capital.

I will leave this piece with an open question about what’s better for the innovation economy. Is it better to have 30 innovative companies with the proper capital and full teams attacking a space, or 500 companies all trying to eat from the same bowl? Yes there is an in between, but follow me for a second.

Picture 10 bowls of food (target partners or consumer segments) and 30 puppies trying to get to those bowls. Then picture 500 puppies trying to get to those same 10 bowls. Then translate that same chaos to a market and business and how that impacts CAC, time to a sale, revenue growth cycles, total capital required, communications cycles, and all of the other resource and growth factors impacted by chaos.