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Here they are:
10. Inadequate Focus
When everything is a blank piece of paper, there is an unlimited set of possibilities. The great dual-edged sword of the start up experience is freedom. The freedom exists to pursue anything or everything. Success, however, is a function of focus. Start ups that don't focus in early and completely upon a target customer/solution/market/etc. will fail. Sure, you can build a technology or a product that is useful to many individuals or companies or industries. But to succeed, you have to pick a specific set of individuals, companies or industries that your technology or product helps and focus intently on them. With an industry focus, for example, the second customer sale is easier than the first, and the third sale easier than the second, etc. If Marriott is a customer, for example, then Hilton or Gaylord knows immediately that a respected competitor has "validated" your product. Another customer from another industry just wouldn't provide Marriott with that same validation.
9. Substandard Product
In the 80's, the statement was "perception is reality". This reflects the power marketing once had to influence prospects about a product. Today, reality is reality thanks to the availability of user reviews of everything. Previously, you could achieve the perception that your offering was superior with a less than stellar product via creative marketing or sales muscle. Some companies grew well with vaporware. Those days are over. Now, the product has to be great. Not kind of great, or great in certain lights, but great in the opinion of knowledgeable users. Oh, that's the other thing, the world is now full of knowledgeable users - who want great products. Not products with great marketing, sales or positioning.
The commitment to create a great product is central to a successful start up's DNA. It permeates all thoughts, actions, plans and attitudes. If it doesn't, the product isn't going to be great. If the product isn't great in today's market, the start up is ill equipped to compete and is unlikely to survive.
8. The Value Proposition isn't Understood or Valued
The solution the start up offers must solve a problem that is acutely felt by whoever has it and the solution the start up offers must be recognized as the appropriate answer. In life science investing, for example, the target market question is in two parts. First, how many people have the condition or disease that this treatment addresses. Second, how many with the condition seek treatment. The market is the subset that desire a solution.
If the target market doesn't understand what it is or what it does or why they might want it, the start up will not make it to its happy place. Yes, something can be a great shampoo, floor wax and dessert topping but what it can do or how it can be used is the seller's perspective. But it will never sell on the basis of being good at any of those things, it will only sell for what it is great at doing from the customer's persepective. The buyer's perspective is not all it can possibly do, but the one or two things it will do for them and do for them better than anything else.
7. Salespeople determine Target Markets
It is unfair to ask salespeople to define target markets. The job of truly understanding the market segmentation and customer profiles is a broad responsibility across a start up. Many start ups task their limited sales force with solving this question on a "trial and error" market segmentation, where they call lots of people and report back on what they hear. The result is unscientific to the point of being completely unreliable. The right people have to be asked the right questions to determine the best prospects with the greatest need and perceived value for the solution. Only when the target profile is developed can salespeople deliver real value.
You need to position salespeople to win by defining the prospect clearly. Salespeople are often talented hunters but, for maximum efficiency, they need the prey to be carefully defined for them. If you say, "Go shoot rabbits", without further definition of rabbits, salespeople will shoot at everything that moves, declare them all to be rabbits, and argue that whatever they hit is proven as a "rabbit". It wastes time and won't secure customers that can be profitably sold and serviced on a scaleable basis.
Even given an infinite amount of time, most salespeople won't hone in on the best target customers. It isn't their skill set. Salespeople are great at determining fit of a solution to a customer's needs. Do them a favor by eliminating as many suspects as possible. Then, they can focus on fit, budget and compelling action. More will be sold as a result.
6. Wrong Timing
Being early to a market is a slower death than being late to a market. Either way, if the timing of the offering is well off of the market opportunity, failure is highly probable. It is easy to get timing wrong. Most Venture Capitalists have stories of great ideas that suffered from nothing more than abysmal timing.
If you have ever surfed, you know that once you see a big wave, you have probably missed it. Timing the great wave is about properly anticipating it within the context of many waves. By the time the success of a Groupon or LivingSocial is widely recognized, the opportunity to ride that wave is long gone.
You can also be too early. Even with a great product and a well defined market, timing is critical. I led the creation of a product called MyRoom.com in 1997 as an online private space for teenagers where they could create their web space, invite friends, have an email address, and enjoy a customized radio station. It was well executed, and way too early. If the company's market timing is way off, the start up won't often live to see its day in the sun.
5. Not Enough Experimentation
You cannot understand too much about anything related to a start up's progression. The rapid assimilation of the truth is a competitive advantage for a start up. All things being equal, in a competition the faster start up to get to the truth wins the race. At the end of the day, everything will be known by pretty much everybody. Before that point, a better understanding of key customer insights is a competitive advantage. A management team that prides itself in being "smarter" about customers without being data driven for its "intelligence" gets beaten by a team with better data -- nine times out of ten.
If the product and key processes aren't continually perfected with feedback and testing, the start up doesn't have a chance. If you don't get into a mode of test and refine cycles, you won't arrive at the processes, product, support and understanding necessary for growth. The start up that relies on its own wisdom consistently over the results of dispassionate customer dialogue and testing is screwed or soon will be.4. Low Urgency
Consistent with the previous point, every start up is in a race against time and insolvency. Show me a start up management team that isn't moving like its hair is on fire and I will show you failure in the making. When the team doesn't keep a fast pace, they fall behind in everything. When they fall behind in everything, there is no amount of money or cleverness that will close the gap between them and their faster moving competitors. There is no functional equivalent to a time machine, time lost is time gone.
There are legitimate reasons and times to move slowly and carefully. And it is difficult to know when patience should outdo urgency. To stay appropriately urgent, start up management teams must assess the rationale for going slowly. If critical data points are imminent, it is usually worth waiting. If the desire is to perfect something prior to launch, it is usually not worth waiting. Your team must accept that the perfect is not the enemy of the good. Many times, good will be good enough because failing to act is failure. There just isn't time for inaction. A management team that tends toward slower response to opportunity and challenge will create cumulative damage to the company's standing.
3. Total Random External Events
Stuff happens and sometimes that stuff is both random and devastating to a start up company. Many start ups fail for reasons beyond their control. Any start up making reasonable head way in the summer of 2008 with a product for the larger financial firms, including Wall Street, Large Banks or Mortgage Companies, knows this well. Sometimes things are "overcome by events" and fail as a result.
A start up can do almost everything right and still fail because of external events. So can large companies for that matter.
2. Poorly raised or managed Capital
This isn't just about the health or receptiveness of the capital markets, the company must either make do on the capital it has OR get more capital. Success requires more capital than failure requires. It isn't necessarily about the underlying growth or lack thereof, but moreover, the management of the capital available to the business. If enough money isn't raised or care is not exercised over what resources are available, then the money needed to survive isn't there. And the game is over.
Picture a growth market where companies are trying to gain marketshare while attempting to re-define a market of five players down to the two "winners". The availability of capital and access to it will have a disproportionate influence on the outcome. Or imagine alternatively, a down market where the stewardship of capital will determine the survivors.
Start ups need a capital strategy for well-being and growth. Many start ups fail due to lack of a sound capital strategy.
1. Unwilling or Unable Management
Start ups most commonly fail because their management isn't willing or able to make them succeed.
Getting start up successfully launched can be hard. Sometimes they can be nearly impossible to make succeed. In practice, it is far more likely that management is unwilling than unable to make a go of something. Many a management team backs off when they realize how long and difficult the road to success is going to be for their company. They will simply say, "This is too much". Which is true for them. It is entirely fair for them to admit.
Is too much for anyone? Maybe. Sometimes it is too much effort and time for little prospect of return. Sometimes, it is just too much for a given management team. Other times, the start up fails because it is beyond the abilities of the assembled team. This is less frequent in my experience. A management team that is willing but lacks ability will renew itself with deletions and additions. By comparison, a management team lacking in determination isn't situated to fix that or even motivated to fix it.
This post was originally published by BusinessInsider.com on September 3rd, 2010. Here is the link
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