Why 90% of startups fail… And what to do about it.

startups

THIS ARTICLE IS RE-POSTED FROM MEDIUM.COM. Credit to its author, Bram Krommenhoek. “Why 90% of startups fail, and what to do about it.”

Most entrepreneurs think they’re building the next big thing.

In reality, over 90% of them fail.

But you’re not one of them, right?

That’s what I thought. I thought my startup made complete sense. It would revolutionize the way entrepreneurs build their business.

I was like most entrepreneurs: I never thought I would be one of the failures. And I never expected it to be as lonely and isolating.

That’s why I’m writing this: to help you prevent this from happening.

A bit of background

Looking back, when I started my startup fresh out of university, I was extremely ignorant and had no idea what I was doing. All I knew was that I wanted to solve the problem I personally ran into: I have a brain full of ideas but no way to turn them into reality.

I’ve worked closely with the founding teams of over 20 startups, and have seen them work or not work. Combining that experience with my current work with startups, it gets clearer and clearer you CAN build the kind of business that does highly meaningful work.

You CAN solve huge problems and make other people’s lives better.

You CAN turn your ideas into reality, and it’s completely within your control.

However, most people fail because they make mistakes they could have prevented.

Once you’re aware of those mistakes, you can pursue success by averting them. Preventing them will allow you to work on things that actually create value.

Want to build a successful startup?
Prevent these mistakes.

Mistake 1.
Focus only on building and not on the customers

“Life’s too short to build something nobody wants. “- Ash Maurya

The problem

Your one and only goal should be to solve a meaningful problem FOR OTHER PEOPLE.

This is crucial because 42% of startups fail because they didn’t solve a market need.

They failed because they didn’t put others first.

What generally happens is this:

A founder gets an idea >> builds the solution >>tries to sell it >> nobody buys the solution >> the founder runs out of money >> the startup dies.

When I joined my first startup, this happened to us too. The founders thought they had a brilliant idea, and thought that if they put enough features in the software, their customers would buy it.

We focused only on building and were terrified of one thing in particular — negative feedback. We were terrified of failure and rejection.

Because of that, we only sought praise — not criticism.

As a result, the business never took off, and eventually failed to meet its milestones.

The solution

One of the top-tier entrepreneurial masterminds, Steve Blank, has developed a method to increase the success rate of startups. He calls it customer development. The principles of his method are:

  • There are no facts inside the building. You need to talk to users as much as you can to move forward, even if that means doing things that don’t scale.
  • No business was built on nice-to-have features. The most important thing is to make your customer more successful by solving their biggest struggles, challenges and frustrations. Something nice-to-have won’t lead to big business.
  • No plan survives its first contact with the market. So don’t spend months drawing them up. Take 5 minutes to put your ideas on a business model canvas, and go test them.

The only way you’ll be able to grow your startup is by combining building with user research. By embracing feedback, you open yourself up to enormous success you’ve never seen before.

Want to know how? You can read more about that in my other posts here and here.

Want to build a successful startup?
You have to know what makes your solution valuable to others.

Mistake 2.
Lack of focus

“Lack of direction, not lack of time, is the problem. We all have twenty-four hour days.”-Zig Ziglar

The problem

This one is really easy. If you find yourself doing one of these things without knowing they’re going to move the needle, STOP!

STOP:

  • “Coffees,” whether that’s with potential partners, investors or acquirers.
  • Networking. Seriously…
  • Recruiting a board of advisors
  • Doing partnerships without proof of extra revenue
  • Spending time on PR and social media before knowing you’ve got the right product for the right customer
  • Going to conferences

These are the silent killers of the potential of your startup.

The solution

Basically, the only two things you need to focus on when you’re in the startup phase is:

  1. Users
  2. Product

The only way to stay on track as a startup is to develop the product and talk to users. You just don’t have time to get caught up in other things.

Want to build a successful startup?
Stop spending all your time doing stuff that doesn’t move the needle.

Mistake 3.
Being a One-Person Team

“Individuals don’t build great companies, teams do.”-Mark Suster

The problem

Paul Graham, one of the founders of Y Combinator and one of the most successful entrepreneurs around, says there are three essentials things to create a good startup.

  1. Good people
  2. Make something customers actually want
  3. Spend as little money as possible

As I wrote in a previous post, I failed because I didn’t put point one first.

I thought I could pursue number 2 first, and then find the people to help me build it. But making something customers actually want will fix itself if you have good people. Spending as little money as possible will fix itself if you have good people.

Research supports this:

  • Solo founders take 3.6x longer to outgrow the startup phase.
  • A balanced team with a hacker and a hustler (tech and biz) has 2.9x more user growth than an unbalanced team

The solution

My advice to each (would-be) founder is this: find AT LEAST one person from a different discipline to join you. Ideally, you have a combination of people that covers the holy startup triangle: hipster, hacker, hustler (aka designer, engineer, marketer.)

Because if you’re with good people from the start, making something your customers actually want becomes 100X easier.

The long hours become way more bearable.

You can pull each other through the lows and celebrate the highs.

Your perspective changes because now you’re with a team, working on something you believe in, with people you can learn a lot from. And that by itself is worthwhile.

Want to build a successful startup?
Don’t be a one-person team.


Mistake 4. 
Premature scaling

“Premature scaling is putting the cart before the proverbial horse. The more a company grows, the further away from profitability it becomes.” -Michael A. Jackson

The problem

This one is tricky because it seems you’re doing everything right. You’re scaling, you’re hiring, you’re funded, you’re growing.

However, they are out of order, and their impact is huge. According to the Startup Genome Project, up to 70% of startups scale up too early. They even go as far as saying it can explain up to 90% of failed startups.

Premature scaling basically means too much, too soon.

The main goal of a startup is to not be a startup anymore. This means 1) getting to a good product for a good market, and 2) knowing how you can consistently acquire new customers for less money than the revenue they bring in.

You’re not ready to scale when:

  1. You don’t know the lifetime value of your customers (price * repeated purchase) and your cost to acquire that user.
  2. Your business model isn’t repeating, meaning you’re not yet acquiring customers in a similar way.
  3. You’re spending more time working in the business than on the business.

The solution

This comes down to a couple of stages with a different focus.

First: problem-solution fit. The first phase is about figuring out who your primary customer is, what problem they want you to solve and how you’re going to monetize on this customer. This means that you a) find a problem that is big enough, b) for enough people and c) where they will pay you to solve their problem in whatever way. I explain how to do that in 7 steps here.

Second: product-market fit. The second phase is about creating an in-demand product that services a large enough market for your startup to grow. This means you test, validate and determine the core features, and use product feedback to build the next version to grow the number of customers who will pay.

Third: channel fit. The third phase is about lowering acquisition costs and increasing revenue so you can reach profit. This means you optimize your conversion funnel and find ways to retain more customers.

Once you know that your cost to acquire a user will be lower than their lifetime value, you can step on the gas and scale-up. This is because you will know that 1 dollar will equal lots of more dollars.

Want to build a successful startup? Apply to the HFL
Don’t scale up when you’re not ready to.


In Conclusion

“All I Want To Know Is Where I’m Going To Die So I’ll Never Go There. “-Charlie Munger

90% of startups will fail.

The entrepreneurs behind them will continue fighting huge wars for average results.

Average results at best.

That doesn’t have to be you.

You can reach way higher. The road there is free and open.

Choose success over failure.

Choose customers over products.

Choose focus on external validation.

Choose a balanced team over going at it alone.

Choose predictable growth over “too much, too soon”

If you’re able to prevent these mistakes, then you’re setting yourself up for major success.

HFL Boot Camp Day 2 (2019)

hfl boot camp day 2

It’s Sunday and time to rock’n’roll! We kicked off the HFL Boot Camp Day 2 on October 8th at 10 AM after a good nights rest. Day 1 was hard, but nothing we can’t handle! With the cohort ready, we set off, picking up the reins where we ended the day before; data collection. We had told our cohort to formulate their three riskiest assumptions and attach a hypothesis to each of those assumptions. Thereafter, it was up to them to ‘hit the streets’ and test their hypothesis’ on potential clients for their projects.

With a majority of the cohort having collected some data, we could begin the HFL boot camp day 2. Here, our focus is on the value proposition of the ideas in the cohort and how to execute solution-engineering, with the product/market fit and ideal consumer in mind.

In the Hult Founders Lab, we believe that creation is practical, and, therefore, learning should be as practical as possible too. This is why, throughout day 2, our main focus was on the cohort actually working with their business ideas. Filling in a value proposition canvas, iterating their assumptions based on real feedback and generally honing in on the actual problem/solution.

It was encouraging for us to see many founders pivot their business ideas. Some realized that who they thought was the customer, wasn’t at all. Others found that the actual problem wasn’t being addressed in their solution design. All-in-all, we are happy to see everyone evolve so quickly, and having an agile mindset.

HFL Boot camp Day 1 (2019)

lars stoerseth going through the hfl objectives

A first in the history of the HFL, the 2-day HFL boot camp got introduced to this cohort’s founders. A weekend full of fun, knowledge and development waited for the motivated founders at the HULT Undergraduate Campus in London. The HFL boot camp has begun!

hfl boot camp day 1

After a short introduction of the new board members and leading bodies of the HFL, the founders directly pitched their idea and introduced themselves to their fellow founders, all of whom will be in this program for the next nine weeks. Ideas variated from industry, interest and development, but in each and every pitch the board was clearly enticed by the creativity of founders in this terms cohort. From education to tech, and from airports to brokerage, the individuality of the ideas was evident.

After the introductory round, both HFL leaders, Prof Liliana Caimacan and Prof Daniel Rukare started with the knowledge sharing, which was essential for the founders. To get into the program, our lead advisors discussed everything from the business plan to USPs. With everything discussed in detail, the founders got a better picture of what they will work on in the upcoming program.

While the founders and board members had standing lunch, a lot of networking and talking took place, whereas already the first friendships, and/or business propositions, as well as possible collaborations got discussed.

hfl boot camp day 1

The afternoon was centred around formulating risky assumptions and deriving hypothesis’ from them, for the developing businesses, whereby the founders needed to take into account the MVP, as well as the future customer groups.

After an exhausting day full of activities, and the entire cohort was sent out on their last mission; to go out on the open streets and test their previously formulated hypothesis’ on real people. Time to prepare for day 2!

Spotlight: BRASA Paris 2018

In November Franco Torres, a member of the HFL went to Paris for the yearly BRASA European Leadership conference.

BRASA is the largest organization of international Brazilian students as it currently has 3500+ active members spread around 72 universities around mainly the United States and Europe.

Franco went to the conference representing his main startup, Dorm Made – the social meal-sharing platform. Dorm Made is a social network that connects college students cooking in their dorms, shared kitchens or flats with other students in search of a healthy yet cheap meal option.

Once Dorm Made reaches product-market fit the BRASA network will be extremely helpful in exposing the solution to thousands of university students around the globe who seek to save time, energy and money by dining Dorm Made!

The theme of this years conference was resignifying the “Jeitinho Brasileiro” and had renowned Brazilian guest speakers such as Maitê Lourenço – Founder and CEO at BlackRock Startups, Jean Philippe Rosier, Founder of Perestroika who is revolutionizing the Brazilian educational system, Guilherme Junqueira, Founder and CEO of Gama Academy – nominated one of the best educational startups by Google’s Singularity University; to name a few of the great minds present and their amazing accomplishments.

The “Jeitinho Brasileiro” is defined as finding a way to accomplish something by circumventing or bending the rules or social conventions. Most times it is harmless but the mindset of this “lifestyle” is many times the base for corruption and leads to cases where one takes advantage of situations as well as people. The conference’s purpose was to unite influential Brazilian student-leaders in an attempt to re-shape the Jeitinho and use it to disrupt paradigms for the betterment of society – which is exactly what Dorm Made attempts to achieve by completely transforming the eating habits of college students, as well as the way they interact with one another. Dorm Made believes in a world where health and practicality go hand in hand and through the sharing economy they are transforming healthy eating into a social activity.

Dorm Made is currently testing its platform in the UK and raising a seed round to further develop the product. Franco will be transferring to Hult San Francisco on September 2019 and plans to penetrate the American market aggressively with the help of tech titans from Silicon Valley.

“Motivation ranking” of reasons why employees seek startups

Results from a sample of +20 thousand candidates applying for jobs with Perestroika.

  1. Purpose
  2. Autonomy
  3. Flexibility
  4. Entrepreneurship
  5. Inspiring Leaders
  6. Work-Life Balance
  7. Love for what you do
  8. Positive Impact
  9. Make Money
  10. Dress Code
  11. Open Communication Culture

Notice how salary comes in only at the 9th position.

Franco at Ecolé Polytechnique’s lake, the university where the conference was held. This institution is renowned for the quality of its student body as it is considered a powerhouse, breading multiple revolutionary French politicians.

Gregorio Duvivier is the Founder of Porta Dos Fundos – Brazil’s 4th most subscribed to Youtube channel. The comedy channel releases sketches depicting social situations in a satirically exaggerated manner. The parodies cover themes such as religion, drug use, sexuality, political corruption as well as everyday frustrations and the criticisms made represent the voice of the Brazilian underworld.

Franco supporting the local politicians. During the conference, Parisians were protesting against abusive government tax on gasoline.

Thank you for reading our ‘Spotlight: BRASA Paris 2018’ blog. Are you interested in joining the Hult Founders Lab? Email us at admin@hultfounderslab.com. Alternatively, you can look at our other locations here.

Mentors Event: Hult Founders Lab

On Thursday 29th of November, the start-ups had the opportunity to meet their mentors. They comprised a professional panel of business advisors from diverse backgrounds who were willing to help the founders in their specific areas of specialities.

The event started by the mentors presenting themselves to inform everyone in the room what they are currently doing and what are the areas in which they have specialized throughout the years. The Hult campus set a great backdrop for the event.

Then, every startup pitched their business ideas in two minutes presenting their product and their main current challenges for the professional panel of advisors, to understand where they might be able to help the startups to move forward because all of them are at different stages. Later, the startups were given time to network with each other and answer some questions that both parties, the mentors and the startups had.

This way the mentors could get a deeper insight into each of the businesses they talked to, and the start-ups could start getting pieces of advice to take their businesses to the next level.

Thank you for reading our ‘Mentors Event: Hult Founders Lab’ blog. Are you interested in joining the Hult Founders Lab? Email us at admin@hultfounderslab.com. Alternatively, you can look at our other HFL locations here.