The Ultimate Start-Up Guide

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.

That’s sobering.

 

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.

 

“Start-ups fail because of lack of execution.” -Charles Beeler

 

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.

ultimatestartupguidenew2Running 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.

 

“Data driven marketing is…one of the best investments an early-stage start-up can make.” -Moe Kermani

 

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.

 

“Less is more. If you think you have focus, focus some more.” -Jishnu Bhattacharjee

 

Why Diversity is Important

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.

 

“You never really know what the market really is until you go to market.” -Pete Sonsini

 

What is post-launch depression? How do you guard against it? 

How Great Firms Prosper Through Entrepreneurial Thinking

Develop an Entrepreneurial Mindset

Why are some businesses more vulnerable to disruptive change than others?

Should big companies engage in entrepreneurship?

How do you stay ahead of the competition?

In Achieving Longevity: How Great Firms Prosper Through Entrepreneurial Thinking, Jim Dewald provides advice on how to create a culture of entrepreneurial thinking. He offers a method to combine the strength of a strong, established business with the innovation of a startup.

Jim is the Dean of the Haskayne School of Business at the University of Calgary, a former CEO and entrepreneur.

 

“To improve is to change, so to be perfect is to have changed often.” –Winston Churchill

 

Prepare Yourself for Real Disruptive Change

What makes businesses vulnerable to disruptive change?

There are 2 main messages in my book.

First, that while we think the world is changing rapidly, in fact, we continue to rely on a platform that arose from the invention of 3 general purpose technologies in the 1870’s: the internal combustion engine, the light bulb, and the telephone. Even with the computer and the Internet, we have spent decades boxing in this amazing new technology to fit our paradigm need for a faster, smaller, cheaper phone. So, while we think we are in the midst of rapid change, the western world is in fact obsessed with ensuring we stick with the old world and reward refinements of tired mature ways of doing things. When real change comes, will business leaders be prepared? I don’t think so.Dewald_AchievingLongevity

One of the reasons why we won’t respond well when real change comes is that while ideas are abundant, small start-up ventures lack the resources – people, money, physical assets — to launch these ideas. They also lack the credibility, networks, access to customers, suppliers, government officials, etc. This limits their ability to move these ideas forward, no matter how great they may be. At the same time, existing companies are flush with people, money, networks, customers, and, most important, credibility and brand value. But what they lack is an entrepreneurial mindset. To move forward, companies need to resist the rhetoric of finding and sticking to a narrow form of sustainable competitive advantage, and instead adopt a model of strategic entrepreneurship that promotes transformational growth and longevity.

The fundamental impact of disruptive change is that our organizations are not built to manage change very well. Through principles such as sustainable competitive advantage, we tend to use fixed mindsets that build a sort of impenetrable armor around the firm’s processes and procedures, instead of being flexible and adaptable. When disruptive technologies or business models present an alternative, firms resist. Indeed, even customers often resist, as we remain stuck in our paradigms formed as noted above. However, in time, customers adapt because they do not have the level of sunk investment in the old ways that companies often do. Time and again, rigid non-entrepreneurial firms fall by the wayside.

There are many very extreme examples of this phenomenon. Think of Kodak, which is a firm that actually pioneered digital photography, but in the end was unable to adapt to this powerful disruptive technology.

 

“Progress is a nice word we like to use. But change is its motivator. And change has its enemies.” –Robert Kennedy

 

Embrace a Spirit of Entrepreneurship

How can large organizations embrace a spirit of entrepreneurship?

I emphasize the importance of adopting three points:

  1. Recognize that opportunities are developed at all levels of the organization.
  2. Build a culture that embraces and supports entrepreneurship.
  3. Consciously develop support for entrepreneurial initiatives through effectual processes or bricolage.

The key is leadership, not only in words, but in action. It is imperative that the CEO endorse an entrepreneurial culture by example – championing new ideas. In fact, a failure or two is good because it demonstrates that even the CEO recognizes that not every entrepreneurial idea is destined for success, and it is important to manage your investment and ensure that no one new venture will take down the ship.

 

“Culture eats strategy for breakfast.” –Peter Drucker

 

The Key Elements of a Good Corporate Culture

What are the elements of a good corporate culture?

There are many theories on this question, and I included quite a few in my book. In the end, the key elements are:

  1. Provide open opportunities for opportunity development – these include group time (because we know that mixing people with diverse expertise and background can lead to innovative solutions), plus unstructured open thinking time (such as 3M’s famous “tinkering” time).
  2. Adopt a learning culture – growth mindsets are essential, pursuing what could be as opposed to why this won’t work.
  3. Accept failure, and the importance of learning from failure.
  4. Adopt bricolage (known outcomes, with unknown ways of getting there), or effectuation (building on invention, experiment, and science) as frameworks for pursuing each entrepreneurial initiative (purposefully).

 

“The only sustainable competitive advantage is an organization’s ability to learn faster than the competition.” –Peter Senge

 

Encourage Creativity at all Levels

How do leaders encourage creativity at all levels of the organization?

The first thing I would say is that leaders must recognize that organizations need time to change. This is not an overnight process and will require considerable and repetitive actions and wins to change. And failure is a key component – an organization can move far closer to being creative and adopting entrepreneurial thinking by showing that a person with a great idea that failed in implementation is celebrated as thinking outside the box, rather than penalized for failing.

Researchers have studied the importance of story-telling in organizations, and how a lasting culture can be built around well-known, maybe even legendary, stories that come from the history of the organization. The dimensions of story-telling I describe in my book include equality (versus inequality), security (versus insecurity), and control (versus lack of control). Through story-telling of actual events that happened in the organization’s history, employees are able to gauge whether the organization will endorse or shun creativity at all levels.

 

“Successful innovators are..not risk-focused; they are opportunity focused.” –Peter Drucker

 

Middle management is often ignored in the leadership literature. What role do they have in this type of change management?