Hard Won Advice from Venture Capitalists
Many of us love to read stories of the beginnings of Apple or Facebook. We imagine what those early days were like and what it would be like to be a part of a small startup that skyrockets to success.
But, of course, statistically most startups fail. Studies show 90% fail in the first two years.
Why do so many startups fail?
What can the successful ones teach us?
Is there a blueprint for startup success?
Tom Hogan and Carol Broadbent founded Crowded Ocean, Silicon Valley’s top marketing firm for startups. They have years of experience working with some of the Valley’s most successful firms. Their new book, The Ultimate Start-Up Guide: Marketing Lessons, War Stories, and Hard-Won Advice from Leading Venture Capitalists and Angel Investors, is packed with the wisdom of their experience working with numerous startups. I recently spoke with them about what makes a successful venture.
Why Start-Ups Fail
Everyone reads about how many startups fail. What are a few of the reasons?
Dog design. According to a recent study of 101 failed startups, 42% cited ‘no market need’ as the reason they failed. In other words, they created their product ‘because they could,’ not because of any perceived market need.
Running out of money. Obvious but it happens more often than you’d think. Because of parsimony (giving away as little of the company as possible) or optimism (I’ve never missed a deadline in my life), first-time CEOs work from budgets and schedules that assume that everything will go right. It usually doesn’t—and so the founders fold shop.
‘Camel Design.’ If a camel is a horse designed by a committee, a camel product is one where the founders listened to too many people, didn’t trust their initial instincts, and built a product that is a little of everything and compelling to no one.
A single, dictatorial founder. It’s one thing to have a strong vision. It’s another to refuse to tolerate questions or input about that vision, especially when that input comes not just from employees but from the market. One way to track how much of a martinet you’re being is by tracking employee retention: this may be your first rodeo as CEO, but most startup employees are on their third or fourth.
Underestimating the competition. Sometimes it’s hubris; other times it’s just not enough time. Either way, most startups don’t respect—or keep an eye on—the competition the way they should. Give the competition their due: The analysts who cover your market—and who have probably had nice things to say about the competition—don’t want to look like they’re stupid. Same for the prospects who either own or are considering the competition. So keep your derisive comments to yourself.
Translate Failure into Success
How can past failures translate to a positive experience?
It all starts with humility and honesty. Virtually every team has one or more scars from failed past ventures. The key is to admit it to other key team members and then use the lessons learned to avoid making the same mistake a second time. The other element is pattern recognition: If you can use your past failures to recognize a mistake in its early stages (say, a bad hire), you can take corrective action before the mistake takes root and does damage.
I love this. Many people think diversity is for more mature businesses, yet you argue otherwise. Why is diversity important for startups?
Diversity of multiple types is healthy and invigorating for startups, not only to build a strong culture but to build better businesses. All the survey data shows that diverse teams make better decisions and improve profitability. So, just like startups benefit by being able to start fresh at the whiteboard to design a better product or service, we believe startups should try to build in diversity from their founding. We encourage startup founders to focus not only on gender and ethnic diversity, but also to consider hiring staff who bring both big-company and small-company backgrounds and to consider embracing the oddballs and misfits who represent “disruptive” thinkers. When tech titans like Apple, Google, and Salesforce have heads of HR and cross-functional teams chartered to lead diversity initiatives, you know diversity is a big deal, not just because it’s the right thing to do but because it translates into better businesses.
What is post-launch depression? How do you guard against it?