Why do so many startups fail?

As evident by the sheer amount of answers to this question, there are numerous and diverse reasons why startups fail.

“The main thing to do if you want to start a startup is look at what happens to those 9 out 10 startups that don’t make it. To really become a connoisseur of that.” – Paul Graham, paraphrased.


With the above words of Paul Graham in my mind, I decided
to spent some time researching what clever entrepreneurs and investors had said about startup failure.

As evident by the sheer amount of answers to this question, there are numerous and diverse reasons why startups fail.

“The main thing to do if you want to start a startup is look at what happens to those 9 out 10 startups that don’t make it. To really become a connoisseur of that.” – Paul Graham, paraphrased.


With the above words of Paul Graham in my mind, I decided
to spent some time researching what clever entrepreneurs and investors had said about startup failure.

I don’t claim that this is an extensive list, neither do I believe this list is correlation nor generalisation proof [20].

Rather, it is simply my own preparation before I embark my own journey.

“That’s what I’d advise college students to do, rather than trying to learn about “entrepreneurship.” “Entrepreneurship” is something you learn best by doing it.” – Paul Graham [29]



Why startups fail & potential solutions

From the research, I have decided on four categories of why startups fail: people, problem, process & context. The categories are discussed separately below.

I have tried my best to include references. The references follow this format, [Q], and the links can be found in the bottom of this answer.

People

Obviously the founding team and the first hires are key factors for startup success. Notable things to consider here:

  • Single founder. Making a successful company in general requires an ability to a) build something, b) sell something, and c) operate something. In rare occasions it is possible for a single founder to do all three aspects, but most often it is not. Having more people onboard brings in additional perspectives as well as moral support for the periods where things is more depressing than rewarding [17; 21]. Furthermore, being more founders serves as an external validation of the idea, since at least more than one person is crazy enough to believe in the project [1].


“Talent wins games, but teamwork and intelligence wins championships.” – Michael Jordan


  • Bad attitude. A few years ago I read Marina Krahovsky’s article in Stanford Magazine titled “The effort effect” highlighting psychology professor Carol Dweck’s work on fixed vs. growth mindset [46]. Dweck’s work shows how the success depends on whether a person conceives talent as either something given that needs to be demonstrated or as something that can and needs to be developed. Although Dweck’s work derives from her studies of professional sportsmen, I believe it holds true for entrepreneurs too. You simply won’t become a good entrepreneur without effort, and if you blame your failure on lack of ability, you have the wrong attitude for being an entrepreneur. Rather listen to Alexis Ohanian, Matty Monahan, Joel Cascoigne and Nikki Durkin, when they share their common secret; they don’t know what they are doing [47; 48; 49; 54]. Other bad attitudes for entrepreneurs include being pessimistic, protective and only focus on easy wins. To build a great company you need to be in it for the long haul [21] and appreciate inputs from others. Did I mention I am a huge fan of Buffer’s approach to transparency [50]?


“When life gives you lemonade, make lemons. Life will be all like WHAT!?” – Phil Dunphy, Modern Family.


  • Not devoted. You need to believe in the vision of your startup [25]! The vision provides you with direction and motivation to keep on going. Devotion also implies the necessity to say no to other opportunities [19] and to fight distractions [18]. Continuously turning down friends and families for pursuing your startup requires that they are extremely supportive [17;21]. This goes especially for your partner. However, remember to balance the long working hours with a) a bit of social life, b) regular exercise, and c) decent food [21; 51] – no need/benefit from isolate yourself completely from society [21]. Also, do consider to leave your day-time job and go all in your startup, that is, if you believe enough in it…


“Statistically, if you want to avoid failure, it would seem like the most important thing is to quit your day job.” – Paul Graham [1]


  • Stubborn/conviction beyond reason. Although it is important to be devoted and passionate about your startup, this should not turn into stubbornness. Stubbornness will make you ignore feedback from the customers, thus preventing you from changing direction when necessary [1; 2; 21]. You will often be able to spot stubbornness when observing a founder during a user interview, just check if the founder is pitching rather than interviewing [e.g. 27]. This is evident through two questions: a) who is talking the most; is it the founder or the user? And b) does the founder try to convince the user of problems that the user does not have? One common misconception about listening to the users is that users don’t know what they want [13], thus serving the needs of your current users will result in loosing future relevance [14]. I have two remarks on this misconception. First of all, startups are in the process of building a large user base, thus they are not big corporations with “outdated” users as is the problem of big companies facing what Clayton Christensen popularized as the Innovator’s dilemma. Secondly, and probably even more important, no one has ever said you need to listen to all of your users. Instead, focus on your lead users [15] and/or early adopters [29]. Michael Margolis of Google Ventures has a decent guide on how to conduct user research [16]. Note: some stubbornness is needed, as you will need to make decision with limited and conflicting information [24].


“Don’t get too attached to your original plan, because it’s probably wrong.” – Paul Graham [1]


  • Unskilled. It goes without saying: you need skilled people onboard. Having skills and knowing various tools in-depth will also help you know more ways to solve problems (like using LinkyDink, Tumblr or Google spreadsheet to build a MVP [33]). Paul Graham has a good point stating that it can be difficult for a business person or designer to judge the skills of a good programmer [1]. This is another good reason why it is important to have a skilled developer as co-founder. As a business person, I would argue that it can also be difficult for a developer to recognise a skilled sales person, while acknowledging that sales is easier to learn than programming. Maybe, and just maybe, karma/meritocracy systems of Topcoder etc. can help non-developers to increase their ability of spotting good developers.


  • Norm-core. Successful founders seem to be those with the right skills and living on the edge [30]. These founders are able to draw from their own experience and solving problems that is not (yet) evident to the majority of the population by noticing what is missing [30]. For advise on how to be less norm-core I recommend John Cutler’s Quora answer on how to find startup ideas [31] and read Steve Blank’s recently published thoughts on The Inventure Cycle [52]. And don’t forget that it is backed by science that spending time aboard increases your creativity [32].


“If you only read the books that everyone is reading, you can only think what everyone else is thinking.” – Haruki Murakami, Norwegian Wood


  • Fight between founders. (To be written)

Problem

Next to the people involved in the startup, the perhaps most important aspect of startup success is the problem they are trying to solve.

  • Making something no one wants. Many founders fall in love with their idea. They spend months developing their solution, only to discover that their precious product does not solve anyone’s problem [1; 2; 3; 4; 26; 29; 53]. These days a common trend is what Paul Graham labels derivative ideas [1], where entrepreneurs are basically just imitating a successful startup. The main problem with this trend appears to be that startups launched this way indirectly assumes that the solution for a specific problem in one market can easily be transferred to other contexts. Sergio Romo has written an excellent Medium story elaborating the fallacies of this thinking and the problems faced by startup clones [12]. To avoid making something no one wants, the lean startup methodology [2;], design thinking [4] and customer development research [3] is doing a great job providing tools & methods for entrepreneurs to reduce waste by focusing on solving problems.


“Make something people want” – Y Combinator


  • Making something everyone wants. Investor and entrepreneur, Peter Thiel, tests people by asking them: “What important truth do very few people agree with you on?” [7]. This question tests two things: a) the prospect’s ability to think brilliant, and b) the prospect’s courage. Peter Thiel and Blake Master argue that highly successful companies will be those changing the norms of society [8]. To change social norms implies a need to do something different than what most people will accept a priori – e.g. renting out your spare rooms to strangers (AirBnb) or sharing your private life online (Facebook). Truth be told, you can probably still create a profitable company without changing social norms. However, when building such companies, it is still important to build for a specific user segment [29]. This also goes for when you are building platforms! Just look how Facebook started with a very specific user segment: university students at Harvard.


“Most good startup ideas seem a little crazy; if they were obviously good ideas, someone would have done them already.” – Paul Graham [5]


  • Making something only very few people needs. The third aspect of the problem is the potential market size. Although it is a strength to solve a problem for a specific customer, it is equally important for success, that this is a sizeable problem [1; 29]. Elon Musk and Google X is perhaps the best places to look for inspiration in this matter. You are also likely to witness how much easier it is to gain external support if you are pursuing big ideas (like one laptop per child), compared to when you are merely copying other successful startups. One challenge faced by many extraordinary startups is that their idea seems meaningless or irrelevant at the outset. Thus it is difficult to find the right balance between making something that is relevant for a specific group, but later can be relevant for a very large group.


“We wanted flying cars, instead we got 140 characters.” – Peter Thiel


Process

This category is called process, but also encompasses organizational choices.

  • Big batches & scalability. It appears to me that we as humans are caught in an industrial mindset: we are firm believers of the effectiveness of big batches and the importance of scalability. Big batches and scalability are of course important drivers for big companies, but for startups the opposite might be the best thing to pursue. Eric Ries [40] highlights how producing in small batches allows for a) faster feedback and problem location, and b) reduces risk and overhead. In what is likely my favourite Paul Graham essay, he encourages startups to do things that don’t scale. Doing unscalable things will provide valuable learnings and help your startup to get kickstarted. Read Markus Kirjonen‘s Reddit post for good insights on how successful startups had to fight for their first customers by doing things that don’t scale read [11].


  • Launching too slow. No one I know feels comfortable putting something out there that is not yet finished. This is especially true when it comes to projects where people have invested a lot of time, money, emotions and/or reputation in the process [55]. Unfortunately, very few, if any, projects will ever reach a state where it is finished nor perfect. Thus postponing the launch until the product is finished, is not only harmful, it is probably impossible. The key task is rather to build something (a MVP) that allows you for a meaning learning [1; 2; 42; 43]. So before you build your next landing page or paper prototype, ask yourself if you will be able to gain valuable feedback or if you are simply measuring reactions of assumed future behaviour [42; 43]. People are ridiculous poor in predicting their future behaviour and often want to make you happy by confirming your assumptions, thus make sure to ask about past behaviour instead of future behaviour [53].


“I’m focusing on finishing stuff. Not talking, not reading, but finishing and launching.” – Pieter Levels


  • Features. Entrepreneurs don’t lack ideas for their startups. In fact, they seem to have plenty of things they want to improve/launch. However, it is important to focus on doing something very well, before launching new features [25]. At my previous workplace, Board of Innovation, we often used a template called The Innovation Battlefield [26] to guide startups to focus on the core feature(s). Read also Andy Dunn’s brilliant Medium story, Get one thing right, where he resonates why customers just need one thing from your brand [28].


“When Microsoft asked their users what they wanted added to Office, they found that 90% of the requested features were already there.” – Des Traynor [38]


  • Vanity metrics. The lean startup methodology [2] follows three phases: build, measure, learn. Launching too slow addresses the build phase, and being open to inputs from users is very much aligned with last phase. What I have not mentioned anything about so far is the second phase: measuring. According to Eric Ries, too many startups focus on what he labels vanity metrics, which basically encompasses metrics that are not actionable [45]. Take for example total number of users. This number does not offer any insights into how the startup is performing compared to earlier, neither does it tell how those users were acquired. Eric Ries proposes four methods for producing actionable metrics: a) A/B testing, b) cohort analysis, c) per customer analysis and d) keyword metrics.


“Don’t measure anything unless the data helps you make a better decision or change your actions.” – Seth Godin [56]


  • Burning too much money. Recently Bill Gurley made the news with his warning that the startup community is currently taking on an unprecedented amount of risk [36]. Contrary to the traditional way of predicting bubbles through valuations, Bill Gurley uses the high burn rate of startups to support his argument [37], stating that it is not uncommon for startups to burn $4M/month. There are two important things to consider here: a) what is your revenue compared to burn rate [57], and b) how flexible is your burn rate. It is less of a problem to have a high burn rate if your startup has a high revenue and is flexible with its burn rate. One key proxy for a high and inflexible burn rate is usually headcount [1; 39], which thus can be managed/avoided by a) employing later, b) using freelancers, interns and micro task services like Amazon Mechanical Turk or by c) paying with equity rather than salary. Besides lowering the burn rate, there are two ways startups can avoid running out of money: a) increase profit and b) raise more money. Each of these methods come with pros and cons as discussed subsequently.


“The only unforgivable sin in business is to run out of cash” – Harold Geneen


  • Too (un)focused on revenues. One of the consequences following the success of the lean startup methodology appears to be the heavy focus on proving the business concept early on [30]. Read for example Ash Maurya’s There is no business model without revenue [22] or check Javelin’s recent launched QuickMVP product [23]. I am firm believer of the importance of nurturing market at the same time as building product. However, strong focus on revenue from early on can be bad in many situations. Especially for very disruptive ideas where the founders are acting on a leap of faith, which was the case with AirBnb [29]. Furthermore, for user platforms (Facebook, Twitter, Quora, etc.), it is generally advised to focus on building a large and active user base first. Finally, revenues can encourage founders to a) game the numbers by offering discounts, and b) direct focus from the long term vision (e.g. accepting time-consuming consulting/customization work.


“If you start from successful startups, you find they often behaved like nonprofits. And if you start from ideas for nonprofits, you find they’d often make good startups.” – Paul Graham [35]


  • Too (un)focused on raising money too early. The other way to increase the length of your startup’s runway, is by raising money. However, instead of spending countless of hours chasing investment in the early stage of your startup, consider if it is not more rewarding chasing customers [26]. Bringing on money implies that you have an extra stakeholder to align when/if changing direction. Additionally, this stakeholder expects a return on investment thus is likely to demand that the invested money gets to work [1]. Bringing the money to work implies hiring people and getting a real office space, whereby you increase the burn rate (=risk?) and is likely to experience the culture of your startup being challenged, with the majority starting to work 9-5. Therefore, if you do raise money, at least make sure that the investor is smart, has a genuine interest in you succeeding, that you share a common vision and that you spend the necessary time managing the investors [1]. Note: almost all startups will sooner or later need to raise capital. Money can be very handy to accelerate growth or to keep your company going before it can sustain itself.


  • Bad communication. (To be written)


  • Choosing the wrong tools. Paul Graham argues it is important to develop for the right platform, whether it is an operating system or programming language [1]. I also think it is important to pick the right platforms to reach your customers. These days many startups open 5+ social media accounts from the beginning. I don’t think this is necessary. In fact, I think it might do more harm than good, as building a meaningful presence on any social media platform takes time. By chasing to many platforms at once, the startup is likely to dilute the value of their efforts.


  • Bad equity sharing. (To be written)

Context

Even if you as a founder do everything right, chances are still in favour of you failing.

  • Bad location. Being born in certain countries increases your expected life span and lifetime income. Similar, certain locations has proven more robust for avoiding startup failure [1]. The reasons for this boils down to access to the right employees, institutions, customers, and investors, but also reflects the regulations and culture of the location [5]. Having high density of resourceful people increases serendipity, as you are more likely to bump into people who can help you forward. On a side-note, I recommend Stef Lewandowski’s story on how to accelerate serendipity [44]. Big from the side-note, it is worth mentioning that superstar-mechanisms [9] makes it near impossible for other locations to compete with Silicon Valley. In case you are in the process of building a startup ecosystem to compete with Silicon Valley I recommend you to read Marc Andreessen’s thoughts on this [10]. Furthermore, despite yet to deliver more than a promise, The Internet and virtual reality might diminish the importance of physical location. Today I frequently witness the right kind of serendipity happening on Twitter, ProductHunt and Reddit, and team communication tools like Slack and Google Hangouts might be able to facilitate the necessary connectedness during execution. That said, I think there is a long way to go before it is possible to build successful companies without the rich face-to-face communication with the right people (investors, co-founders, employees, advisors, media, support organisations etc.).


“The easiest way to thrive as an outlier is to avoid being one. (…) Surround yourself with people in at least as much of a hurry, at least as inquisitive, at least as focused as you are. Surround yourself by people who encourage and experience productive failure, and who are driven to make a difference.” – Seth Godin [6]


  • Timing. (To be written)


  • Bad luck. (To be written)


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References

[1] – Paul Graham The 18 Mistakes That Kill Startups.
[2] –
Eric Ries (entrepreneur, author)The Lean Startup.
[3] –
Steve BlankThe Four Steps to the Epiphany.
[4] – SAP –
Introduction to Design Thinking
[5] – Paul Graham –
How to Be Silicon Valley
[6] –
Seth GodinThe easiest way to thrive as an outlier
[7] –
Peter Thiel (businessman) & Blake Master – Peter Thiel on the challenge of the future
[8] – Peter Thiel & Blake Master –
Zero to One
[9] – Sherwin Rosen –
The Economics of Superstars
[10]
Marc AndreessenWhat It Will Take to Create the Next Great Silicon Valleys, Plural
[11]
Markus KirjonenHow startups such as Dropbox, Airbnb, Groupon and others acquired their first users.
[12] Sergio Romo –
Me-Too Startups
[13] Often people cite Steve Jobs, for attributing Henry Ford the following words: “If I had asked people what they wanted, they would have said faster horses”. However, as
Tim Kastelle points out, there is no evidence of Ford actually saying these words: Two Great Innovation Misquotes.
[14] Clayton Christensen popularized this thought in his book
The Innovator’s Dilemma, and I believe that the tbehind his thinking
[15] Eric von Hippel –
Democratizing Innovation – your lead users are those with a) high benefit of your solution and b) potential solutions to their problems.
[16] Michael Margolis –
User Research Workshop – Google Ventures
[17] Ali Mese –
How quitting my corporate job for my startup dream f*cked my life up
[18] Ali Mese –
The Single Biggest Reason Most Entrepreneurs Fail in 2014
[19] Kevin Ashton –
Creative People Say No
[20]
Evan WilliamsAll the Startup Advice You Read is Wrong
[21] Kevin Lavelle –
Entrepreneurship Survival Guide
[22] Ash Maurya –
There is No Business Model Without Revenue
[23] Javelin –
Quickmvp.com
[24] Mark Suster –
Here is How to Make Sense of Conflicting Startup Advice
[25] Laurence McCahill –
10 ways you’ll probably f**k up your startup
[26] Board of Innovation –
Why 3M misses the mark: analysed with the Innovation Battlefield Fram…
[27] Michael Sacca –
How we rode 167 customer interviews to a validated launch
[28] Andy Dunn –
Get one thing right
[29] Paul Graham –
Startupideas – early adopters are very important, as they not only appreciate the solution, but also accepts that the solution is not yet hundred percent done (whatever that means).
[30] Benjamin Kampmann –
Lean startup canvas: the wrong tool.
[31]
John CutlerJohn Cutler’s answer to What are the best ways to think of ideas for a startup?
[32] William Maddux & Adam Galinsky –
Cultural borders and mental barriers: The relationship between living aboard and creativity
[33] Ryan Hoover used LinkyDink
to build the first version of ProductHunt, Betalist was built by Marc K?hlbrugge with Tumblr, and Google spreadsheets has been used by Jason Calacanis for Inside and Pieter Levels for Nomadslist.
[34] Pieter Levels –
Meet Pieter Levels, He is Launching 12 Startups in 12 Months
[35] Paul Graham –
Be Good
[36] Bill Gurley –
Venture Capitalist Sounds Alarm on Startup Investing
[37] Fred Wilson –
Burn Baby Burn – AVC
[38]
Des TraynorYour new feature is going to flop. Here’s why
[39] Marc Andreessen –
The big driver of burn rate is almost always headcount
[40] Eric Ries –
Work in small batches
[41] Paul Graham –
Do Things that Don’t Scale
[42] Jake Knapp –
Paper prototyping is a waste of time
[43]
Ramli JohnThe Vanity Minimum Viable Product
[44]
Stef LewandowskiAccelerating serendipity
[45] Eric Ries –
Vanity Metrics vs. Actionable Metrics – Guest Post by Eric Ries
[46] Marina Krakovsky –
The Effort Effect
[47]
Alexis OhanianFrom Dot-Com Zero to Hero: One Man’s Story
[48] Matty Monahan –
Banking on Banksy
[49] Joel Cascoigne –
I Have No Idea What I Am Doing
[50] Joel Cascoigne –
Why we have a core value of transparency at our startup, and why the reasons don’t matter
[51] The Economist –
Entrepreneurs anonymous
[52] Steve Blank –
How To Think Like an Entrepreneur: the Inventure Cycle
[53] Michael Bohanes –
Seven lessons I learned from the failure of my first startup, Dinnr
[54]
Nikki DurkinMy startup failed, and this is what it feels like…
[55] Interestingly, the same reasons make entrepreneurs continue working
on a startup for a long time. Sometimes even for a too long time.
[56] Seth Godin –
Analytics without action
[57] Danielle Morrill –
Are VC Investors Prepared to Manage Public Company Scale in Private Markets?

ormal; font-style: normal; background: none;”>I don’t claim that this is an extensive list, neither do I believe this list is correlation nor generalisation proof [20].

Rather, it is simply my own preparation before I embark my own journey.

“That’s what I’d advise college students to do, rather than trying to learn about “entrepreneurship.” “Entrepreneurship” is something you learn best by doing it.” – Paul Graham [29]



Why startups fail & potential solutions

From the research, I have decided on four categories of why startups fail: people, problem, process & context. The categories are discussed separately below.

I have tried my best to include references. The references follow this format, [Q], and the links can be found in the bottom of this answer.

People

Obviously the founding team and the first hires are key factors for startup success. Notable things to consider here:

  • Single founder. Making a successful company in general requires an ability to a) build something, b) sell something, and c) operate something. In rare occasions it is possible for a single founder to do all three aspects, but most often it is not. Having more people onboard brings in additional perspectives as well as moral support for the periods where things is more depressing than rewarding [17; 21]. Furthermore, being more founders serves as an external validation of the idea, since at least more than one person is crazy enough to believe in the project [1].


“Talent wins games, but teamwork and intelligence wins championships.” – Michael Jordan


  • Bad attitude. A few years ago I read Marina Krahovsky’s article in Stanford Magazine titled “The effort effect” highlighting psychology professor Carol Dweck’s work on fixed vs. growth mindset [46]. Dweck’s work shows how the success depends on whether a person conceives talent as either something given that needs to be demonstrated or as something that can and needs to be developed. Although Dweck’s work derives from her studies of professional sportsmen, I believe it holds true for entrepreneurs too. You simply won’t become a good entrepreneur without effort, and if you blame your failure on lack of ability, you have the wrong attitude for being an entrepreneur. Rather listen to Alexis Ohanian, Matty Monahan, Joel Cascoigne and Nikki Durkin, when they share their common secret; they don’t know what they are doing [47; 48; 49; 54]. Other bad attitudes for entrepreneurs include being pessimistic, protective and only focus on easy wins. To build a great company you need to be in it for the long haul [21] and appreciate inputs from others. Did I mention I am a huge fan of Buffer’s approach to transparency [50]?


“When life gives you lemonade, make lemons. Life will be all like WHAT!?” – Phil Dunphy, Modern Family.


  • Not devoted. You need to believe in the vision of your startup [25]! The vision provides you with direction and motivation to keep on going. Devotion also implies the necessity to say no to other opportunities [19] and to fight distractions [18]. Continuously turning down friends and families for pursuing your startup requires that they are extremely supportive [17;21]. This goes especially for your partner. However, remember to balance the long working hours with a) a bit of social life, b) regular exercise, and c) decent food [21; 51] – no need/benefit from isolate yourself completely from society [21]. Also, do consider to leave your day-time job and go all in your startup, that is, if you believe enough in it…


“Statistically, if you want to avoid failure, it would seem like the most important thing is to quit your day job.” – Paul Graham [1]


  • Stubborn/conviction beyond reason. Although it is important to be devoted and passionate about your startup, this should not turn into stubbornness. Stubbornness will make you ignore feedback from the customers, thus preventing you from changing direction when necessary [1; 2; 21]. You will often be able to spot stubbornness when observing a founder during a user interview, just check if the founder is pitching rather than interviewing [e.g. 27]. This is evident through two questions: a) who is talking the most; is it the founder or the user? And b) does the founder try to convince the user of problems that the user does not have? One common misconception about listening to the users is that users don’t know what they want [13], thus serving the needs of your current users will result in loosing future relevance [14]. I have two remarks on this misconception. First of all, startups are in the process of building a large user base, thus they are not big corporations with “outdated” users as is the problem of big companies facing what Clayton Christensen popularized as the Innovator’s dilemma. Secondly, and probably even more important, no one has ever said you need to listen to all of your users. Instead, focus on your lead users [15] and/or early adopters [29]. Michael Margolis of Google Ventures has a decent guide on how to conduct user research [16]. Note: some stubbornness is needed, as you will need to make decision with limited and conflicting information [24].


“Don’t get too attached to your original plan, because it’s probably wrong.” – Paul Graham [1]


  • Unskilled. It goes without saying: you need skilled people onboard. Having skills and knowing various tools in-depth will also help you know more ways to solve problems (like using LinkyDink, Tumblr or Google spreadsheet to build a MVP [33]). Paul Graham has a good point stating that it can be difficult for a business person or designer to judge the skills of a good programmer [1]. This is another good reason why it is important to have a skilled developer as co-founder. As a business person, I would argue that it can also be difficult for a developer to recognise a skilled sales person, while acknowledging that sales is easier to learn than programming. Maybe, and just maybe, karma/meritocracy systems of Topcoder etc. can help non-developers to increase their ability of spotting good developers.


  • Norm-core. Successful founders seem to be those with the right skills and living on the edge [30]. These founders are able to draw from their own experience and solving problems that is not (yet) evident to the majority of the population by noticing what is missing [30]. For advise on how to be less norm-core I recommend John Cutler’s Quora answer on how to find startup ideas [31] and read Steve Blank’s recently published thoughts on The Inventure Cycle [52]. And don’t forget that it is backed by science that spending time aboard increases your creativity [32].


“If you only read the books that everyone is reading, you can only think what everyone else is thinking.” – Haruki Murakami, Norwegian Wood


  • Fight between founders. (To be written)

Problem

Next to the people involved in the startup, the perhaps most important aspect of startup success is the problem they are trying to solve.

  • Making something no one wants. Many founders fall in love with their idea. They spend months developing their solution, only to discover that their precious product does not solve anyone’s problem [1; 2; 3; 4; 26; 29; 53]. These days a common trend is what Paul Graham labels derivative ideas [1], where entrepreneurs are basically just imitating a successful startup. The main problem with this trend appears to be that startups launched this way indirectly assumes that the solution for a specific problem in one market can easily be transferred to other contexts. Sergio Romo has written an excellent Medium story elaborating the fallacies of this thinking and the problems faced by startup clones [12]. To avoid making something no one wants, the lean startup methodology [2;], design thinking [4] and customer development research [3] is doing a great job providing tools & methods for entrepreneurs to reduce waste by focusing on solving problems.


“Make something people want” – Y Combinator


  • Making something everyone wants. Investor and entrepreneur, Peter Thiel, tests people by asking them: “What important truth do very few people agree with you on?” [7]. This question tests two things: a) the prospect’s ability to think brilliant, and b) the prospect’s courage. Peter Thiel and Blake Master argue that highly successful companies will be those changing the norms of society [8]. To change social norms implies a need to do something different than what most people will accept a priori – e.g. renting out your spare rooms to strangers (AirBnb) or sharing your private life online (Facebook). Truth be told, you can probably still create a profitable company without changing social norms. However, when building such companies, it is still important to build for a specific user segment [29]. This also goes for when you are building platforms! Just look how Facebook started with a very specific user segment: university students at Harvard.


“Most good startup ideas seem a little crazy; if they were obviously good ideas, someone would have done them already.” – Paul Graham [5]


  • Making something only very few people needs. The third aspect of the problem is the potential market size. Although it is a strength to solve a problem for a specific customer, it is equally important for success, that this is a sizeable problem [1; 29]. Elon Musk and Google X is perhaps the best places to look for inspiration in this matter. You are also likely to witness how much easier it is to gain external support if you are pursuing big ideas (like one laptop per child), compared to when you are merely copying other successful startups. One challenge faced by many extraordinary startups is that their idea seems meaningless or irrelevant at the outset. Thus it is difficult to find the right balance between making something that is relevant for a specific group, but later can be relevant for a very large group.


“We wanted flying cars, instead we got 140 characters.” – Peter Thiel


Process

This category is called process, but also encompasses organizational choices.

  • Big batches & scalability. It appears to me that we as humans are caught in an industrial mindset: we are firm believers of the effectiveness of big batches and the importance of scalability. Big batches and scalability are of course important drivers for big companies, but for startups the opposite might be the best thing to pursue. Eric Ries [40] highlights how producing in small batches allows for a) faster feedback and problem location, and b) reduces risk and overhead. In what is likely my favourite Paul Graham essay, he encourages startups to do things that don’t scale. Doing unscalable things will provide valuable learnings and help your startup to get kickstarted. Read Markus Kirjonen‘s Reddit post for good insights on how successful startups had to fight for their first customers by doing things that don’t scale read [11].


  • Launching too slow. No one I know feels comfortable putting something out there that is not yet finished. This is especially true when it comes to projects where people have invested a lot of time, money, emotions and/or reputation in the process [55]. Unfortunately, very few, if any, projects will ever reach a state where it is finished nor perfect. Thus postponing the launch until the product is finished, is not only harmful, it is probably impossible. The key task is rather to build something (a MVP) that allows you for a meaning learning [1; 2; 42; 43]. So before you build your next landing page or paper prototype, ask yourself if you will be able to gain valuable feedback or if you are simply measuring reactions of assumed future behaviour [42; 43]. People are ridiculous poor in predicting their future behaviour and often want to make you happy by confirming your assumptions, thus make sure to ask about past behaviour instead of future behaviour [53].


“I’m focusing on finishing stuff. Not talking, not reading, but finishing and launching.” – Pieter Levels


  • Features. Entrepreneurs don’t lack ideas for their startups. In fact, they seem to have plenty of things they want to improve/launch. However, it is important to focus on doing something very well, before launching new features [25]. At my previous workplace, Board of Innovation, we often used a template called The Innovation Battlefield [26] to guide startups to focus on the core feature(s). Read also Andy Dunn’s brilliant Medium story, Get one thing right, where he resonates why customers just need one thing from your brand [28].


“When Microsoft asked their users what they wanted added to Office, they found that 90% of the requested features were already there.” – Des Traynor [38]


  • Vanity metrics. The lean startup methodology [2] follows three phases: build, measure, learn. Launching too slow addresses the build phase, and being open to inputs from users is very much aligned with last phase. What I have not mentioned anything about so far is the second phase: measuring. According to Eric Ries, too many startups focus on what he labels vanity metrics, which basically encompasses metrics that are not actionable [45]. Take for example total number of users. This number does not offer any insights into how the startup is performing compared to earlier, neither does it tell how those users were acquired. Eric Ries proposes four methods for producing actionable metrics: a) A/B testing, b) cohort analysis, c) per customer analysis and d) keyword metrics.


“Don’t measure anything unless the data helps you make a better decision or change your actions.” – Seth Godin [56]


  • Burning too much money. Recently Bill Gurley made the news with his warning that the startup community is currently taking on an unprecedented amount of risk [36]. Contrary to the traditional way of predicting bubbles through valuations, Bill Gurley uses the high burn rate of startups to support his argument [37], stating that it is not uncommon for startups to burn $4M/month. There are two important things to consider here: a) what is your revenue compared to burn rate [57], and b) how flexible is your burn rate. It is less of a problem to have a high burn rate if your startup has a high revenue and is flexible with its burn rate. One key proxy for a high and inflexible burn rate is usually headcount [1; 39], which thus can be managed/avoided by a) employing later, b) using freelancers, interns and micro task services like Amazon Mechanical Turk or by c) paying with equity rather than salary. Besides lowering the burn rate, there are two ways startups can avoid running out of money: a) increase profit and b) raise more money. Each of these methods come with pros and cons as discussed subsequently.


“The only unforgivable sin in business is to run out of cash” – Harold Geneen


  • Too (un)focused on revenues. One of the consequences following the success of the lean startup methodology appears to be the heavy focus on proving the business concept early on [30]. Read for example Ash Maurya’s There is no business model without revenue [22] or check Javelin’s recent launched QuickMVP product [23]. I am firm believer of the importance of nurturing market at the same time as building product. However, strong focus on revenue from early on can be bad in many situations. Especially for very disruptive ideas where the founders are acting on a leap of faith, which was the case with AirBnb [29]. Furthermore, for user platforms (Facebook, Twitter, Quora, etc.), it is generally advised to focus on building a large and active user base first. Finally, revenues can encourage founders to a) game the numbers by offering discounts, and b) direct focus from the long term vision (e.g. accepting time-consuming consulting/customization work.


“If you start from successful startups, you find they often behaved like nonprofits. And if you start from ideas for nonprofits, you find they’d often make good startups.” – Paul Graham [35]


  • Too (un)focused on raising money too early. The other way to increase the length of your startup’s runway, is by raising money. However, instead of spending countless of hours chasing investment in the early stage of your startup, consider if it is not more rewarding chasing customers [26]. Bringing on money implies that you have an extra stakeholder to align when/if changing direction. Additionally, this stakeholder expects a return on investment thus is likely to demand that the invested money gets to work [1]. Bringing the money to work implies hiring people and getting a real office space, whereby you increase the burn rate (=risk?) and is likely to experience the culture of your startup being challenged, with the majority starting to work 9-5. Therefore, if you do raise money, at least make sure that the investor is smart, has a genuine interest in you succeeding, that you share a common vision and that you spend the necessary time managing the investors [1]. Note: almost all startups will sooner or later need to raise capital. Money can be very handy to accelerate growth or to keep your company going before it can sustain itself.


  • Bad communication. (To be written)


  • Choosing the wrong tools. Paul Graham argues it is important to develop for the right platform, whether it is an operating system or programming language [1]. I also think it is important to pick the right platforms to reach your customers. These days many startups open 5+ social media accounts from the beginning. I don’t think this is necessary. In fact, I think it might do more harm than good, as building a meaningful presence on any social media platform takes time. By chasing to many platforms at once, the startup is likely to dilute the value of their efforts.


  • Bad equity sharing. (To be written)

Context

Even if you as a founder do everything right, chances are still in favour of you failing.

  • Bad location. Being born in certain countries increases your expected life span and lifetime income. Similar, certain locations has proven more robust for avoiding startup failure [1]. The reasons for this boils down to access to the right employees, institutions, customers, and investors, but also reflects the regulations and culture of the location [5]. Having high density of resourceful people increases serendipity, as you are more likely to bump into people who can help you forward. On a side-note, I recommend Stef Lewandowski’s story on how to accelerate serendipity [44]. Big from the side-note, it is worth mentioning that superstar-mechanisms [9] makes it near impossible for other locations to compete with Silicon Valley. In case you are in the process of building a startup ecosystem to compete with Silicon Valley I recommend you to read Marc Andreessen’s thoughts on this [10]. Furthermore, despite yet to deliver more than a promise, The Internet and virtual reality might diminish the importance of physical location. Today I frequently witness the right kind of serendipity happening on Twitter, ProductHunt and Reddit, and team communication tools like Slack and Google Hangouts might be able to facilitate the necessary connectedness during execution. That said, I think there is a long way to go before it is possible to build successful companies without the rich face-to-face communication with the right people (investors, co-founders, employees, advisors, media, support organisations etc.).


“The easiest way to thrive as an outlier is to avoid being one. (…) Surround yourself with people in at least as much of a hurry, at least as inquisitive, at least as focused as you are. Surround yourself by people who encourage and experience productive failure, and who are driven to make a difference.” – Seth Godin [6]


  • Timing. (To be written)


  • Bad luck. (To be written)


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References

[1] – Paul Graham The 18 Mistakes That Kill Startups.
[2] –
Eric Ries (entrepreneur, author)The Lean Startup.
[3] –
Steve BlankThe Four Steps to the Epiphany.
[4] – SAP –
Introduction to Design Thinking
[5] – Paul Graham –
How to Be Silicon Valley
[6] –
Seth GodinThe easiest way to thrive as an outlier
[7] –
Peter Thiel (businessman) & Blake Master – Peter Thiel on the challenge of the future
[8] – Peter Thiel & Blake Master –
Zero to One
[9] – Sherwin Rosen –
The Economics of Superstars
[10]
Marc AndreessenWhat It Will Take to Create the Next Great Silicon Valleys, Plural
[11]
Markus KirjonenHow startups such as Dropbox, Airbnb, Groupon and others acquired their first users.
[12] Sergio Romo –
Me-Too Startups
[13] Often people cite Steve Jobs, for attributing Henry Ford the following words: “If I had asked people what they wanted, they would have said faster horses”. However, as
Tim Kastelle points out, there is no evidence of Ford actually saying these words: Two Great Innovation Misquotes.
[14] Clayton Christensen popularized this thought in his book
The Innovator’s Dilemma, and I believe that the tbehind his thinking
[15] Eric von Hippel –
Democratizing Innovation – your lead users are those with a) high benefit of your solution and b) potential solutions to their problems.
[16] Michael Margolis –
User Research Workshop – Google Ventures
[17] Ali Mese –
How quitting my corporate job for my startup dream f*cked my life up
[18] Ali Mese –
The Single Biggest Reason Most Entrepreneurs Fail in 2014
[19] Kevin Ashton –
Creative People Say No
[20]
Evan WilliamsAll the Startup Advice You Read is Wrong
[21] Kevin Lavelle –
Entrepreneurship Survival Guide
[22] Ash Maurya –
There is No Business Model Without Revenue
[23] Javelin –
Quickmvp.com
[24] Mark Suster –
Here is How to Make Sense of Conflicting Startup Advice
[25] Laurence McCahill –
10 ways you’ll probably f**k up your startup
[26] Board of Innovation –
Why 3M misses the mark: analysed with the Innovation Battlefield Fram…
[27] Michael Sacca –
How we rode 167 customer interviews to a validated launch
[28] Andy Dunn –
Get one thing right
[29] Paul Graham –
Startupideas – early adopters are very important, as they not only appreciate the solution, but also accepts that the solution is not yet hundred percent done (whatever that means).
[30] Benjamin Kampmann –
Lean startup canvas: the wrong tool.
[31]
John CutlerJohn Cutler’s answer to What are the best ways to think of ideas for a startup?
[32] William Maddux & Adam Galinsky –
Cultural borders and mental barriers: The relationship between living aboard and creativity
[33] Ryan Hoover used LinkyDink
to build the first version of ProductHunt, Betalist was built by Marc K?hlbrugge with Tumblr, and Google spreadsheets has been used by Jason Calacanis for Inside and Pieter Levels for Nomadslist.
[34] Pieter Levels –
Meet Pieter Levels, He is Launching 12 Startups in 12 Months
[35] Paul Graham –
Be Good
[36] Bill Gurley –
Venture Capitalist Sounds Alarm on Startup Investing
[37] Fred Wilson –
Burn Baby Burn – AVC
[38]
Des TraynorYour new feature is going to flop. Here’s why
[39] Marc Andreessen –
The big driver of burn rate is almost always headcount
[40] Eric Ries –
Work in small batches
[41] Paul Graham –
Do Things that Don’t Scale
[42] Jake Knapp –
Paper prototyping is a waste of time
[43]
Ramli JohnThe Vanity Minimum Viable Product
[44]
Stef LewandowskiAccelerating serendipity
[45] Eric Ries –
Vanity Metrics vs. Actionable Metrics – Guest Post by Eric Ries
[46] Marina Krakovsky –
The Effort Effect
[47]
Alexis OhanianFrom Dot-Com Zero to Hero: One Man’s Story
[48] Matty Monahan –
Banking on Banksy
[49] Joel Cascoigne –
I Have No Idea What I Am Doing
[50] Joel Cascoigne –
Why we have a core value of transparency at our startup, and why the reasons don’t matter
[51] The Economist –
Entrepreneurs anonymous
[52] Steve Blank –
How To Think Like an Entrepreneur: the Inventure Cycle
[53] Michael Bohanes –
Seven lessons I learned from the failure of my first startup, Dinnr
[54]
Nikki DurkinMy startup failed, and this is what it feels like…
[55] Interestingly, the same reasons make entrepreneurs continue working
on a startup for a long time. Sometimes even for a too long time.
[56] Seth Godin –
Analytics without action
[57] Danielle Morrill –
Are VC Investors Prepared to Manage Public Company Scale in Private Markets?

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