This Is What Consistently Makes A Startup Fail
I started my career at big companies. Some of the biggest companies in the world.
For 11 years, I worked in environments that required as much political savvy as intellectual savvy. So I was thrilled when I was hired for my first role at a small public biotech company, as the Chief Business Officer. I was so excited for the opportunity to take all my learnings and use them to make a difference. To be on a ship small enough to direct the course. To feel the tangible results of my efforts.
I was naive about what happens at smaller companies. In my mind, if a company had a promising product or business model, it was sure to be a success.
I was wrong.
Since that move, I have worked with more than 15 early stage companies, either in a C-suite role or as a consultant. I have seen the good, the bad, and the ugly.
I am now much better at spotting management teams with potential for success. Granted, there are always surprises with a young company. But I have noticed a few trends. Issues that always end up breaking a company if they are not resolved.
So, if I spot any of the issues below, I know that no matter how good the product, the company is unlikely to “work” long term.
The CEO Doesn’t Delegate
In a startup, often a CEO is also the Founder. The guy who has been there since the beginning. He probably ran the company solo, or with his co-founder, for a long time before reaching this stage. He is used to having total control.
Then, the company gets bigger. It has some wins, or raises some funds. He hires a team.
But he still wants to involvement in every decision in the company.
This is a recipe for disaster for a startup. Things are moving too fast, and there are too many decisions. If the CEO can’t learn to delegate, he becomes a bottleneck. The company can’t move forward. The team gets frustrated. The product can’t launch on time. And ultimately, failure.
Entrepreneurs tend to be optimists. They have to believe that the impossible is possible. And that often carries over to financial and product planning.
I have come in to so many startups to see that their timing estimations were off by months or even years.
Its great to be an optimist. At the same time, “hope” is not a plan. Wanting a product to launch in 3 months does not make it so.
Timelines that are unrealistic from the start have other impacts as well. When the timing is not met, the team starts to look inwards at who to blame. There is time wasted in finger pointing.
It also means that a company will not reach its financial projections. The projections that were the underpinning of its fundraising, or valuation. Investors are less likely to invest (or reinvest) if a company is unable to meet its timelines. Without the capital to move forward, a company can fail before it has even begun.
The Team Doesn’t Fully Understand The Market (either need or speed of change)
Unless you are creating a new market, your product is entering a fast moving current of products that already exist.
You think you have “built a better mousetrap”. So you price your product at a premium to what is already out there. But you don’t understand why people buy the current products. Or the competitive landscape. So you launch, and your product gets no traction.
Or, you do have a great niche in the market. But you spend too much time perfecting the product. Thinking through all the possible scenarios. You don’t understand how quickly your competitors innovate in this market. By the time your first product is ready, 3 other competitors have caught up to you. Do you want to start from scratch, or take 1/4 of the market that you thought was yours alone?
Neither of these scenarios are successful. In sectors where you are able to pivot, there can be some learnings. It is possible to go back and optimize your product or develop a new product that can still be a competitor.
But in biotech, this spells disaster. One product takes millions of dollars and years to come to market. If you misunderstand your market from the outset, your company goes under.
There are lots of ways for startup companies to fail. If startup success was textbook, everyone would do it. But if your company suffers from any of these three operational issues, it cannot succeed until the issue gets resolved.
The best management teams are able to adapt to the needs of their company and their market. So that the innovative product can shine. And the operations can support, not hinder, company success.