Let's be honest- none of us put in the grueling labor of starting a business because we're excited to fail. Most all of us will, and typically several times- but what sets apart successful founders is their ability to learn to do better the next time.
What follows are both statistics and proven methods from founders who made it work (even if it was their 10th try).
Not to get overly philosophical here, but for the sake of continuing together we need a working definition of success. In the following pages we'll define success as: a business that has had a profitable exit or has positive cashflow after paying all expenses and salaries. To set tangibly clear goals for what that looks like based on when startups tend to become stable, this means growing to 50+ employees and revenues of 20M+ per year while being profitable.
Lastly, we'll also niche down a little bit: these will apply specifically to tech startups. While there may be overlap with many industries, tech is it's own beast. If you aim to have more of a social-purpose definition of success as well, you'll enjoy this article on purpose driven development.
So before we end up as another one of the 900,000 startups that fail every year, let's learn the most potent principles for succeeding in tech.
Putting the top factors contributing to startup success into a neat little bucket isn't easy. They overlap, they affect each other, they bleed in and out, no failure or success is for any one reason by itself. In an attempt to create a unique and yet clear vision for startup success, I've summarized our principles into a diagram and a model that can help guide how you view your startup:
This first model takes 6 core factors and breaks them down into 10 sub-factors. It illustrates how so many points can overlap and why funding is sometimes attributed to 42% of startup failure and, in other studies, just 17%. It's the confusing overlap between factors that messes with data for exactly why startups fail. The reality is: everything is connected. Let's remember that before we get too focused on statistics.
This model focuses on a bus, based on Jim Collin's Good to Great concept of "getting the right people on the bus." If we view the bus as the business, we see that it is composed of a team, a business model, and customer needs. This takes in funding and, in theory, returns a greater financial value on the other side. This bus has to drive to a destination and has to choose which route based on conditions (adaptability) and how fast to go based on conditions (timing)- be it parking or full speed ahead.
In both experience and study the primary reason that startups fail early on is a lack of understanding of customer needs. This is usually due to a number of reasons including...
This is a broad category but put simply, to succeed:
Startups must thoroughly understand customer needs and how to communicate how their solution uniquely solves those needs.
This begins with potential customer interviews and surveys, gathering data on their pains and problems without ever mentioning your product. That's right- don't even mention it. Otherwise you are leading them on and getting false promises rather than a real honest truth of their experiencing a pain point.
Unfortunately, most startups rush through or completely skip understanding their customer altogether. Or, worse yet, they stop doing it once they release their product, not realizing that this is a continual process of customer feedback and adjustment. Without the customer having need of you, you cannot exist.
This is where the application of the scientific method in startups needs to be applied and, thankfully, is increasing in popularity. We create a hypothesis, test it thoroughly and in small nimble ways, and then we go all-in when we find a winner. Not before.
This same process applies to marketing the solution once it is ready. Once the need is thoroughly understood, we appeal to that need in various ways with clear communication. Nothing technical about a product. Really, no one cares about your product. They care about how you help them.
Because marketing is so vital and few understand how to do this well, unless someone on your team is an expert, we highly recommend hiring this part out. Or try the old advisor and intern combo (more on that below).
Our recommendation: don’t even build a prototype unless you’ve tested the pain that your supposed “solution” solves.
Our next most important factor for startup success is the team. No matter how big the opportunity in the market, without the right team, it can all fall apart. A team is typically composed a few categories of members:
Founding teams have been shown to be most successful in the 2-3 range, with 5+ significantly lowering likelihood of success. Many teams know each other prior and operate on relational trust, others find each other and need to be intentional to build that trust. Many startups fail due to a breakdown in their startup marriage, ending in startups divorce- you need to intentionally nurture these relationships with care.
Startups founders often consist of the one of the following combinations:
Now often the team above is still inexperienced in a variety of areas- which is where advisors come in. They are the sages who lend you experience in a specific niche. For example, if you are building a platform for trades companies, having an advisor who runs a trades company and who is well-connected in that industry is invaluable. They can also give more expert advice in development, marketing, fundraising, etc... Coaches and consultants can also fill in this role for a fee; an advisor typically comes in via relationship or belief in your vision (often for equity or stock options).
Most early-stage startups can't afford staff but can with time or with grants. A common mistake is hiring the first eager person you find rather than defining the long-term culture of the company. Be selective and find the best. It's far easier to hire right the first time than to fire and retrain a new hire.
Partners, also known as strategic partners, can be a huge boost to growth when a deal is made. Once you have initial traction, you now have the leveraging power to start finding adjacent markets or products wherein you can partner to help a shared customer base. Finding as many of these as possible not only helps your company to grow but is a clear way to value-proof for investors as they see other businesses putting their trust in you.
Lastly, the team needs a powerful why- a vision, a story- with the skill to achieve it, and the character to endure. In the words of Jim Collins in his best-seller, Good to Great, "You must retain faith that you will prevail in the end and you must also confront the most brutal facts of your current reality."
What is the end for your company? What is a goal that you can work towards? Both a short-term, long-term, and infinite goal. Clearly articulate them for your team and let it be a driving force. And be humble enough to learn from everyone, to adapt, while having enough grit to endure when all hope seems lost. An optimistic realist leading a team is a powerful driver.
Before you do anything in a startup, you've probably envisioned some form of a business model. The clearest way for startups tends to be on a business model canvas- a one-page summary of customers, problems, solutions, value exchange, service/product, financing, expenses, marketing, etc... This is one of the most powerful tools for quickly understanding your business. But it needs to be treated as a hypothesis, not set-in-stone. The market research phase and the MVP need to prove or disprove it. Too many startups have not learned this fast enough and have gone under due to not adjusting their model to meet reality (i.e. adaptation- way #6).
The business model canvas is a fast way to test and prove, or disprove, basic underlying assumptions. We recommend Leanstack or Ideabuddy (or both) to help with this part of planning. You can also then turn this into a business and investor pitch with the 7Ps model.
By way of example- if you have a goal to grow to 20M in revenue by year 5, and you do the math and determine that based on an average transaction fee of $2 on your food-delivery app, you will need 10 million transactions a year to accomplish that. Assuming each customer uses it 5x a year, you need 2 million customers. Assuming each customer costs an average of $10 to acquire- then you will have needed at least $20,000,000 in funding to get to that point, just for marketing. May be worth modifying the business model to find something that is more viable.
Timing is one that has more nuance to it than most people think. You don’t want to be first as the first-movers advantage is a myth and most first-movers fail but prime the market for fast-followers. Further, you don’t want to be too late otherwise you won’t be able to catch up very well and will likely be outcompeted or out resourced. When you launch matters, though it is part luck and part how effective you are as to whether you can take a substantial market share.
And then there is the issue of overall company speed. A company that is always rushing will not do their due diligence and will make expensive mistakes. A company that over analyzes and spends forever building their software will go bankrupt before they make a dollar. Rather, the discipline comes in careful preparation and planning balanced alongside focused sprints.
To know when to walk and when to run is what matters, and to be ready to do either when needed. Statistically, going to market 6 months earlier makes can make a 3x profit difference within 3 years- so don’t waste time getting to market. But also don’t rush customer discovery as that has proven to be one of the #1 killers of startups- building a solution no one wants.
A top priority when building your startup is to learn as much as you can and to adapt your pace to what you are learning. This is why we advocate so much for low-code technology in MVPs- it allows you to develop and change your app at the pace of learning. This allows you to change, add, and remove based on live customer discovery.
Most successful companies pivot 1-3x before they find problem-solution fit, which leads to product-market fit. It is essential that your company pay attention to whether or not people actually care about your solution to their problem, and whether you have found a problem worth solving. If not- pivot. It may be that there is an adjacent problem worth solving that your technology could be easily tweaked for that could result in big wins. This was the case for Slack when their previous company was dying. This was the case for us when our first startup brought in $20 in 6 months and when our pivot brought in $120 on the first day. The was the case for Knowhow when their first product, Bootkik, aimed at a consumer market and struggled to break 5k MRR, and when they pivoted to a business market they suddenly soared past 30k MRR in just a few months. Now they’ve raised several rounds and are growing.
Running your startup is about learning as much as you can and adapting to that as wisely and swiftly as possible. Do not hold on to an innovator’s bias, but respond to reality and be humble enough to change. But before you even build an MVP, here are 5 things you should consider first.
Many of you will have heard of “The Lean Startup” model or have been encouraged to run a lean business. As mentioned at the beginning, as much as 42% of startup failure has been linked to running out of funding or not being able to find it. If you run lean, with as little cost as possible, then you enable yourself to do what causes most companies to fail: survive long enough to find product-market fit.
For example, our company, Rentbridge, was run super lean. We built everything ourselves, with government grants, and the cash from our other businesses. Simultaneously, another, much larger company, Ruckify, quickly became the largest business of our kind in the world, and they came right to where we were based as their 2nd city. They soon expanded all over North America as they raised over 25M.
Neither of us did proper customer discovery but believed we had an amazing idea. Ruckify went bankrupt as they spent a crazy amount of cash with their marketing and 80+ staff. They then came to us for a buyout- a bootstrapped company that had come to the same conclusion without losing investors a dollar. We outlasted them, were acquired for a small sum, and moved on to opportunities with more potential.
The goal of being lean on the green is to be lean until you’ve proven your model with traction. Then, go all in. Raise money. Expand. But you do not want to lose all of your money and investor’s money until you’ve figured it out. And if you are used to operating a company efficiently, focusing on cashflow and traction, then you will survive not only growth itself but the next economic downturn when not-so-lean companies collapse around you.
Chances are, you were hoping for some easier to implement one-offs. I wish running a company were that easy, too. But if you can take just one or two principles that you learned and apply them- that puts you miles ahead of many startups. And if you want to improve your team with adaptability, speed, a technical lead, and the ability to gather data on customers needs to refine the product, without having to pay for an entire internal team (did I just cover 4 of the above points?)- then we'd love to have a conversation about working together. At StayShure, we're a CTO-for-hire whose goal is to help you 3x your chance of success. A discovery call is one such action you can take to see whether we can help you make your dream a reality. See you soon!
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