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January 16, 2017

10 Reasons Why Founders Fail

Summary:

There are 100 things a founder must get right for his company to succeed, and if he only gets 99 of them right he is likely to fail.

Photo Courtesy of Dennis Jarvis

A seed stage investor with a 20-year track record of success recently told me, “There are 100 things a founder must get right for his company to succeed, and if he only gets 99 of them right he is likely to fail.”

I have heard the pitches of several hundred founders seeking seed funding over the last couple of years, observed more closely the progress of several dozen, and have the privilege of working relationships with several remarkable ones.

While the number of “must do” items may be up for debate, it’s tough to get a new company off the ground and put it on a path to sustainable growth. The statistics speak for themselves. Many startups fail.

By the way, the “must do’s” are relevant for business builders inside existing enterprises, even including the Fortune behemoths.

Here is a short list curated based on direct observation. Your take on which ones to scratch, revise or expand is valuable. So, please share ideas and feedback.

1. They do not solve a real problem.

The founder, inspired by a problem he has encountered in his own life, superimposes his use case on the rest of the world. He fails to understand whether the problem exists at sufficient scale among a group of users, with the same intensity and under conditions similar enough to his own to become a business.

2. They lack empathy for users.

The founder does not understand what is going on in users’ lives, so he loses out on the context that shapes choices and decisions. He does not connect his own business choices – technology, product and design, for starters, with the emotional needs and desires that weigh heavily on user beliefs and decisions. He assumes people make rational choices. He (and his investors) take misplaced comfort in “hard data” and spreadsheets, and discount the new ROE – Return on Empathy. He loses sight of the fact that all selling is “P2P” – people to people – whether the audience is an individual who is buying on her own behalf, or she is buying on behalf of a business. He does not tune in to the mash-up of demographic, behavioral, and attitudinal dimensions that end up affecting financial results.

3. Their product has no meaningful point of difference.

Different for the sake of difference does not matter. Having extra features, however special they seem, can drive up costs with no offsetting benefits. Recently I met a founder, who for two years, along with his product partner has been hard at work turning their concept into a product. He walked me through a presentation. I asked him at the end what the point of difference was, as it was not clear to me. His response could have been headlined in the sales pitches of any of his competitors. Rule of thumb: if users do not see the product as at least 10X better than alternatives, they won’t engage.

See also: Dear Founders: Are You Listening?  

4. They are not actively listening to the market.

Founders almost always, at some level, will ask for and respond to feedback. This behavior reflects a basic kind of listening that is necessary — but insufficient. Active listeners connect with the world around them. They explore, observe and uncover new insights to discover opportunities and improvements for the business. They are able to translate newly discovered insights into implications and then action steps, and make those action steps happen. They are able to set aside orthodoxies about the sector in which they believe they are operating, and not get trapped in unhelpful assumptions.

5. They affiliate with the wrong people.

Resource scarcity is a fact of life at the seed stage. Founders must make the right hires, bring on the right advisors, engage with the right mentors, and build and sustain a network where they are seen as givers and not just takers. Success is a function of emotional intelligence. Can the founder create a culture which supports the passion to fulfill the startup’s purpose is supported? Great talent is scarce. And, however difficult it is to hire the best, it is even harder to fire when things don’t work out. Hiring for “fit” is not about liking a candidate. It is about understanding role accountabilities, skills and leadership profile, the goals to deliver, problems to solve, skills required, and whether the candidate will strengthen the culture and contribute to the team’s success.

6. They do not articulate and operationalize the business model.

The founder has identified a real problem, but does not understand how to get from concept to implementation that can lead to sustainable and viable economics at scale. Where are the market gaps? Which scale segments are not well served? What are the economic underpinnings of the solution? Are there, at a minimum, well-founded hypotheses that make sense? Can the founder translate the concept into front to back implementation whose mechanisms are able to deliver on the economics and other assumptions that were sold to investors? And can he pivot away from even the most dearly held beliefs that stimulated the product to form?

7. They are product focused, not user focused.

The drive for “product-market fit” applied too zealously and literally can derail a founder. Of course the product has to do what it is supposed to do, do so with quality, and meet the users’ expectations behind the decision to buy, use and recommend. As in any case of “too much of a good thing,” the founder who focuses on the product with blinders on, and does not account for user perceptions, priorities and new or changing needs can end up with an amazing technical achievement that is disconnected from people’s needs. Product focus combined with low empathy is a toxic mix.

8. They cannot sell.

A VC friend describing how he qualifies founders pitching for funding recently said, “If the founder cannot sell, run in another direction.” Particularly in the early stages, the founder is the chief revenue officer. Or, if he is the product head, he had better pair himself with a talented sales executive, one who shares the passion for the business’ purpose.

See also: Don’t Forget Your Best Strategic Weapon  

9. They don’t think they have competition.

The founder whose definition of competition is the entities whose products have similar features is missing the point: competition includes any other option the user may choose instead of yours. This includes doing nothing, or sticking with whatever it is they are doing now, however inferior. Inertia can be the biggest competitor. Behavioral economic theory indicates that people weigh the risk of downside twice as heavily as the potential for upside. And of course, with new entrants enabled by ubiquitous access to technology, manufacturing and raw materials, the founder who is not actively listening or is heads-down into his product will miss the warning signals of another upstart ready to overtake him.

10. They cannot sustain the stamina demanded for momentum.

While the lingo of the startup world focuses on implementing through “sprints,” getting to a sustainable, viable and growing business with as few stumbles as possible comes from a tight linkage of many sprints into a marathon. If the founder doesn’t have it in him to run back and forth over hot coals for years, with a firewalker’s mental and physical fortitude, it is unlikely he will be able to go that distance.

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About the Author

Amy Radin is the author of The Change Maker’s Playbook: How to Seek, Seed and Scale Innovation in Any Company. Amy has been at the forefront of rewiring businesses for the future, moving ideas to performance and insights to impact at companies including American Express, Citi, E*TRADE, and AXA.

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