Start-up failures are rarely caused by one big disastrous decision. Instead they are due to a series of missteps. Often entrepreneurs aren’t sure what’s wrong, but know that the company isn’t progressing as expected. What are the warnings signs your start-up is getting off on the wrong foot?
1. Great Team… Not-So-Good Leadership
A team with the right credentials is not good enough to make a start-up successful. Most founders don’t even get this far, those that do have made a self-conscious effort to build a team. But team building doesn’t just stop when you’ve attracted the key players.
There is a difference between assistants and a team. Team members each perform their primary job function in an independent manner to achieve organizational goals. Assistants are directed and do what is asked of them, they are not independent. Too many times, I’ve seen start-ups hire a great team, but then treat them like assistants, micromanaging everything that they do. Have you ever worked for a founder that’s a control freak? Have you ever experienced the CEO with a technical background who won’t let the sales and marketing do what they do best? I’ve even seen founders read the emails of their top management team so they can be certain to be kept abreast of every issue. Unfortunately, these CEO and founders won’t listen to their team about their behavior; the result is the team members get frustrated and move on to another company. A clear sign is when the team assembles to discuss an issue, and the leaders are speaking for more than 20% of the time.
2. Carrying Stealth Mode Too Far
We’ve all heard a start-up say they are in “stealth mode”. It’s another way of saying we don’t want to tell you what we are working on because we are afraid some other company will beat us to market..It doesn’t matter if you are first to market; there is more to gaining traction with customers than just launching the product. Second, this just leaves the impression that the start-up doesn’t know how to market the product, or the team is just a development team with no marketing person.
I’ve seen start-ups present to investors and then say that can’t be forthcoming about the details because the investor hasn’t signed an NDA – not a good idea with investors.
On rare occasions it’s because they are still engaged in discovering exactly what the product or service is to be and don’t want to discuss a half-baked product idea. – may be a reasonable excuse.
How can you convince people to join your start-up adventure unless they know what you are doing? How can you define a product without interacting with potential customers? Entrepreneurial teams should ask themselves how many of the features that are being implemented because potential customers actually mentioned them?
3. Product Development First, Marketing Second
Very early start-ups don’t need execution as much as they need to discover what the business is to be. A start-up often begins with a fairly good notion of what is the problem faced by customers, what is the product, and how they will market the product. But they blindly pursue their original concept. In fact, they squirrel themselves away in their offices, developing the product, having little contact with the outside world. They define a robust, feature rich product, agonize over perfecting every feature, and delay the introduction of the product in the market. Once it’s near completion then they start to get serious about marketing Development and marketing need to both be first.
In a start-up, development activity is very easy to track – number of features, features implemented, features integrated, features tested, versions available, problems reported, problems fixed, upgrades released, and so on. Rarely have I seen tracking implemented and reported for pre-release marketing. I think it’s because it’s usually a one person job function. Someone should be asking how many customers have been identified and contacted, meetings scheduled, and so on. It’s harder to not engage the customers when status must be given about it.
4. A Few Customers Do Not Necessarily Make a Business
Many start-ups find their first one or two customers and it’s time to celebrate. As optimism and euphoria set in, entrepreneurs extrapolate the future with grow curves. As the expression goes, don’t count your chicks before the eggs have hatched.
First, professionals evaluating a business look closely at the customer base. If 80% of the revenue is from a few customers then this is a dangerous situation. Lose just one customer and the business falls apart. There was a networking start-up just a few years ago that had gone IPO and was the darling of Wall Street. Their first product was used by Cisco Systems and Nortel, who accounted for 80% or more of their revenue. The start-up was never able to develop a follow-on product as successful as the first, and attempts to broaden into other markets failed. When the systems of Cisco and Nortel reached end-of-life, the company faltered and was sold for assets. Worry if you have too much revenue from one customer.
Second, as much as we all like to believe we can anticipate obstacles and overcome them, sometimes you are just caught in a tsunami from outside your industry. Take catastrophic economic events such as the subprime mortgage debacle, topped off by the lingering recession, and subsequent national fiscal and monetary policies – sometimes you are in the wrong place at the wrong time. Those revenue predictions may never materialize.
5. Find the Problem and Solve It
Founders just exiting academia tend to exhibit this behavior. They’ve worked on some interesting technology in college or in graduate school, and now they want to start a company. They have this wonderful technology, but need to apply it to something. They become a technology, struggling to become a product that is in search of a problem.
Another scenario is entrepreneurs see a big market and a problem that plagues many customers, but can’t figure how to solve the pain point and end up developing a product that doesn’t address the real problem customer are experiencing. I’ve seen several start-ups lately trying to solve the seemingly universal problem among mothers with their biggest problem of lack of time; every mother wants to clone herself at will. These start-ups products are scheduling software to help them organize their lives better. It’s just a new twist on the calendar software and it’s not addressing the real problem.
6. Thinking Time Is On Your Side
If your start-up’s product is in a competitive industry, time is never on your side. Everything takes much longer than expected. If I’m going to meet with a potential customer for a B2B product, it could be weeks before I am able to get the first in-person meeting – I’m out-of-town and their out-of-town, everyone professional and personal lives are very busy. And that highly anticipated meeting with the most promising prospect could turn out to be a dud. Don’t wait to talk to customers serially; get to as many as you can, as quickly as you can. The marketing rule of thumb for B2B is to contact 10 potential customers per day or 40 per week; to be thinking every morning what I can do today to further the marketing among customers. For B2C, it’s finding out where you customers are congregating and engage with them. I just attended a Sports Marketing conference where the pro sports teams were discussing their social media effort. Why? Because that’s where the new generation of fans are. To be successful as a start-up, it has to be bold and aggressive enough to win. Founders can’t succeed running race at a lackadaisical jogging pace.