In the world of entrepreneurship, there is a lot of talk about what it takes to be successful. There are countless articles on how to build a business that will thrive and make its founder wealthy beyond belief. However, not everyone has the same experience in this competitive arena. In fact, as many as 70% may fail at some point during their first few years of operation! Why does this happen? What are the reasons for failure? The answer can be found by looking at two fundamental reasons that startups typically fail: lack of capital and founder durability. In other words, you run out of money or the founders give up. These two issues often have very different causes but they both lead to one thing- an inability to generate revenue or profits from your product or service offerings. Let’s focus on some of the early startup challenges. These are different for angel and seed round companies than series A and beyond. Getting to series A is the first marathon. We will share the series A and beyond challegnes in a later article.
Product Market Fit and Product ViabilityFailure is often related to the founder’s lack of understanding about product market fit. Sometimes this can be due in part or whole, but not exclusively so because that means they don’t have a good handle on their target audience and what those people want from them based off findings during research studies such as surveys conducted with prospective customers before launching products into the market. Another issue that triggers some capital and revenue challenges is the failure to release and validate your product into the market. How can you get customers to pay if you can’t get prospective customers validating that you’re solving a problem they have. It’s been a hard one for many startups, but the need to validate and release your product in an early stage can help you establish trust with potential customers. It also helps when they see that feedback is being incorporated into new releases of products or services which should make them feel more confident about their purchase decision because it shows clear evidence from users that you provide a distinct value. Don’t sit waiting for the perfect product before you get it in front of customers. That analysis paralysis will quickly lead to a burn rate vs. revenue problem.
Spending vs. Revenue MismatchThis is simply when you’re spending more than is coming in, the end result will be real trouble, or worst case, bankruptcy. Early days often leave you wondering how much you can spend against your revenue, but what about pre-revenue companies and being able to hire? You can’t grow a business on an empty bank account. The start-up team needs to be able make informed decisions about spending vs revenue and the company’s risk tolerance for each stage of its growth cycle. Developing that MVP requires pragmatic use of time and development spending.
Founder’s Durability – BurnoutA founder’s ability to keep going and not burn out is the second fundamental reason a startup fails. The pressure of maintaining every aspect on your own will lead you down an inevitable path for fatigue which in turn leads into frustration or worse depression if it persists long enough without help from someone else who can handle some responsibility. One of the best ways to prevent this from happening is hiring a good COO who can take some tasks off your plate. But if you aren’t able, or are even unwilling for whatever reason (perhaps because it would involve giving up control), then there’s always outsourcing – which may be costly but won’t cost as much in terms mental health and physical well-being over time than burnout will eventually do on its own without help!
Founder’s Durability – Lack of FocusWhat if the founders are stretched too thinly and can’t put focus into the core business? That sometimes comes because of outside commitments or personal endeavors that are competing for their attention. Excellent entrepreneurs are able to balance. They have the ability and discipline that allows them do things like set clear boundaries around their time, say no without guilt when necessary or in a way where they’re still being diplomatic, be accountable for what is theirs alone while giving credit generously with teammates – all of which help maintain focus on business success! Being a founder is a unique challenge and responsibility. If you properly plan your time and create healthy boundaries around yourself, then it becomes easier to be an effective entrepreneur. Just like a family, being present is often one of the most important ways to engage and lead.
Founder’s Durability – Founding Team BreakdownWhat happens when the founding team differs in opinion on product or execution? This is an important and challenging situation and one that needs to be handled before it gets to be a problem. It’s important for the success of your business, however it can also put stress on relationships as well if not done correctly! The best way I think you should handle this scenario would either involve finding ways where both founders feel they are contributing equally or have an understanding about what type work each person prefers doing (i .e., cofounder A likes people management while founder B enjoys product development). This could help balance out any potential disagreements in skillsets needed within those two areas which may arise down-the line so there’s less tension between partners due differences at inception… but do remember: No matter how much time has passed from when these decisions were made — it’s never too late to make a change if you feel like your partner isn’t meeting expectations! Conflict resolution must be a core principle that is shared amont the team. Jeff Bezos coined the phrase “disagree and move forward” which shows that you sometimes have to accept the right decision more than being right yourself. It’s not easy, but it’s critically necessary.
Funds or Founders – It Really is Just Two problemsThere are many factors and variations on the theme but we wanted to narrow it down to the key fundamentals on why failure occurs. No matter the deep details on each situation it comes down to either the company running out of money or the founding team giving up. As a founder you have to be prepared to test if you can avoid potential failure:
- Do you know the challenges and risks ahead?
- Can your team handle them with adequate resources?
- Is this really what I want for myself right now (will it make me happy?)
- Has anyone else had success doing something similar as us?