Start-ups fail. They just do. That is the nuts-and-bolts of the environment. Reducing the the reasons that your start-up might fail should be the first discussion that you and your partners should have right after you sign on the dotted line of your business formation paperwork. Identifying why your company might fail may save money, friendships, and wasted time. Here are some primary reasons that the start-ups I have been involved with have failed.
Concept was Great, but No One Really Wanted the Product
If your market research is based on the statement; “That’s cool!” you might want to re-think your strategic planning. The amount of retirement funds wasted on Junior’s brilliant idea are probably enough to save Social Security. Basing a business on what you think is a great product is like predicting the weather by looking out the window. Get real numbers for demographics, market size, and get the opinion of an expert. There are many examples of a great concept brought to market without there being shown a need or interest by the consumer. Beta or VHS?
Funding, Funding, Funding….
Bootstrapping is awesome! It makes good sense to run lean. However; even the start-up being ran out of the parent’s garage needs capital. Funding doesn’t mean a second mortgage or selling your baseball card collection. It means putting together a complete and concise business plan that will convince someone with more business savvy and money(DUH!) than yourself to invest in your dream. The dream is the frosting but you need to remember that the cake underneath holds it up.
Marketing and Sales Let You Play Mad Scientist Hipster
Remember that no sales means no money and no money means no dream business with an ice cream sundae bar in the breakroom. Plan for marketing and sales before you have a prototype of your whatchamacallit. Investors want to see a sales and marketing plan with goals and a budget. Employees need to see the “suits” with a plan that shows results, one with forethought and strategy. Companies that struggle with marketing and branding vision are the ones that had none in the beginning.
Execution Saves You From Dying
It is trite to say that as a business you need to execute. Execution separates the successful from the guys hanging-out in coffee shops with their laptops and skinny jeans. The need to make a plan and set time oriented goals for all facets of a start-up are paramount down to the molecular level. The company will eventually flounder in mediocrity if R and D, sales, marketing, strategic planning and even operations fail to execute in a timely and successful fashion. This implosion develops into infighting and mumbled accusations which I have seen in what should have been succeeding businesses.
I have worked in a place where the owner hasn’t believe in HIS business. Waffling should have been his last name. There has to be a solid, positive popular front from the founders and management. This isn’t for the employees, but for everyone outside in the investor and consumer world. The general public and investors are quick to pick up on the inner workings of companies with the advent of social media and real-time journalism. If there is the least bit of suspect behavior by the founders and the management team,the outside world will here about it. This is a certainty. So stay engaged and work harder than your best employee. No trips to Pamplona to run with the bulls or flying to China to find the best Moo Shu.
Don’t Count On Any Cash Until It Is In The Bank
Investors are fickle. Consumers and users are even more fickle. Combining the three and counting on money from them brings nothing but stress and joyless holidays. If you get a contract it means nothing until there is a deposit. A V.C. changes his mind mid-signing of the check. Never believe the V.C. is coming in on the deal until the check clears. So save every dollar you can from the beginning. Often times the first little bit of cash infusion in a start-up is seen by the founders, managers, and employees as a winning lottery ticket. I have been there. It is far from it. The money goes fast if not used to generate more capital. Remember: There is no such thing as a company having too much money!
Don’t think you are the coolest, smartest, or most handsome person in the room. You aren’t. People will tell you what you want to hear, from investors to employees. Believe in only what is real and you can prove is real. This means research, sweat, and a lot of hard work. Don’t let the lows define your company or product. These are the three things that I have seen destroy visionary companies and it ends glumly like a funeral in the rain.