Everyone, deep in their heart, wants to see their startup become wildly successful; however, it’s amazing how many founders doom them to failure. Having worked with a lot of startups and companies at various stages including doing a fair number of postmortems, there are a few lessons to be learned.
So, let’s do our countdown of the three best ways to kill your startup…
Number Three: Pursuing Perfection over “Working”
We all want our dreams to be realized in a perfect embodiment of quality and execution. No one dreams of releasing a new product into the world held together by duct tape and bailing wire. No one longs to see their entrepreneurial baby come out only to need a lot of support and quick fixes to keep things running well enough to service demand. But, the reality of business pressures and tech deficits make it an inevitability in order to get the project to the next stage.
One of the biggest traps a tech-focused startup can fall into is losing sight of the core mandate of their pursuit, which is it’s about the product. The pursuit of perfection in code, implementation, scalability, or even operational execution often becomes a tar pit. Waiting for perfection to manifest sucks resources and money. For a startup, this can be fatal.
How do we mitigate this?
First, it’s critical that a startup understand the importance of time to market. The key decision makers must be pragmatic in determining what is acceptable and what is not. The concept of perfection must be understood among all managers that a working and sale-able product is the highest goal. Anything is fixable as long as a steady stream of revenue is coming in.
Number Two: Organization
Too many startups and early stage companies have a tendency to run by the seat of their pants. There is a belief that it’s better to do than to waste time planning or organizing. If you are in a startup or have been in a startup I can almost guarantee if you look around you’ll see anything from pure chaos to chaos covered by a veneer of formality.
Eventually, chaos will catch up and overtake your startup. Something will get lost in the shuffle. Preventable mistakes will be made. If you’re lucky, it will not be major — at first. If you’re not, it will be an existential problem.
How do we mitigate this?
It is exceedingly hard to apply organization over chaos, but it can be done. Just as a tech-focused startup has someone responsible for technology, there needs to be someone with a laser focus on keeping things under control. This needs to be someone who can take ownership over making sure policies are created and followed. This person needs to make sure the voices encouraging chaos are kept in check.
We all like to believe everyone in a startup is capable and competent at managing their own areas of responsibility, but that is rarely the case. To ensure success, someone needs to keep watch over this critical aspect of startup existence. If done correctly, this function will have far-ranging and direct effects over everything from product delivery to fund raising to handling the inevitable legal issues that arise. Let chaos reign to your peril.
Number One: Cash
The number one reason, according to almost every available source of business failures comes down to a lack of cash. Over 84% small businesses fail as a result of undercapitalization or failures of cash flow.
As we all know, high-growth targeted startups eat cash. It’s the reason we fundraise and pursue sources of cash to allow us to get where we need to be. If we run out of cash, we’re dead in the water. Despite the loyalty and commitment of our co-founders and employees, there’s only so many missing paychecks that can occur before we find ourselves alone and wondering how to pay the rent.
How do we mitigate this?
The need for cash cannot be mitigated away; however, we can make some changes to use our cash more effectively. I’ll be up front though and say a full discussion on this topic is a whole field of study and beyond the scope of a simple article, but the single critical thing is to control costs.
Startups are notorious for letting costs creep in various areas. We overpay for rent, staff, equipment, and vendor agreements. We aim to take over the world and often have a habit of spending like we already have. But, to be successful we have to approach our finances with an eye towards poverty. We need to be as lean as we can be and align our business goals toward this attitude.
We need to be more concerted and focused on building early revenue. The days are past where we can strategize on just burning VC cash until someday we exit as wealthy founders. Equity-based funding should be used as a supplement to our own traction. If we don’t need a series B, we shouldn’t pursue it to offset our own lack of fiscal discipline. I know this runs contrary to much of the conventional wisdom touted, but this is about building a healthy startup that can grow into its potential.
All of these points build upon each other. If we pursue a working product that can bring in revenue, we build early cash. If we are relentless in pursuing true organization, we will quickly find areas of waste and extraneous costs that eat into our cash. If we pay attention to our cash, we can make better tactical and strategic decisions that not only allow us to survive, but may actually allow us to succeed without selling out all of our equity just to gain another infusion of new cash.