I wrote an eBook to answer this exact question, title The Top 20 Reasons Startups Fail and How to Avoid Them. It is based on some research. You can download it free here: top20
I have also created a 3-part video course here reviewing this question from the perspective of what learning and tools are required to avoid these twenty mistakes called The Entrepreneur's Journey here.
Join Live Webinar on 12th April 2022
Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
Call (619) SCALE06 or email...
Venture capital investors need to put BIG dollars to work and have a short time frame (5-7 years typically). THEY need startups to move fast. And, yes, if you have 5–10 competitors getting market share then more invested capital will pay off. However, the smartest founders take another approach and raise less money at higher valuations later.
This alternative is a multi-step market entry strategy where a startup starts in a smaller niche to get some traction, proof of concept and cash-flow. Which they should always try to do anyway. The niche targeting requires less marketing and sales expense and gets higher sales conversion and ROI. Then they expand the target market with more/better product(s) or by selling in other markets (niches or verticals). Building a portfolio of niches and/or product before they go head-to-head with bigger competitors
You do not need $50 million in investment...
Well, I think the question is the wrong one to ask, really. It trivializes entrepreneurship. Would you ask, “How do I do my first brain operation?” Or “how do I play Carnegie Hall? Nope! The question should be what do I do to prepare to launch a startup?
First understand that ideas are literally worthless. The press promoting the concept that an "idea is worth millions" is a problem. Building a company takes many things, and the person with only an “idea” has no chance. It is typically a 3 to 5 year to turn an idea into a business. And that process will require hundreds of ideas, maybe thousands, and many skills on a team.
The truth is, there are hundreds of things you should do and learn before you even think and launching a company. Pretending it is one is ridiculous. And that is why over 85% of new companies fail. The number one reason for failure is underestimating the skills, time, money and team needed.
When I launched...
In any startup company, EACH employee MUST wear many hats. In a large company, job specialization is the rule. However, job specialization does not make for a successful startup, as it requires too many people and both the costs and risks would greatly increase with the added levels of people and communication.
It is a well-known fact that there are diminishing returns with each layer and additional employees on any project. This is even more pronounced in knowledge-intensive areas and professional services like software engineering and other knowledge and design-intensive areas. (Read The Mythical Man-Month). In early-stage and smaller companies, each employee must provide a range of value-added responsibilities that might encompass several jobs at a large company.
Therefore, employee selection in early-stage companies is not only more critical because there are so few people, but also more fraught with danger because each person's "scope", ability and attitudes must be...
You can't be all things to all people
Ever notice how that last 10% of almost any job takes half the time or more? This is a simple fact of life in most tasks because the more detail you try to finish the further you get up that exponential cost/time curve to perfection. Even painting your house perfectly is an unachievable and ridiculously expensive goal. In fact, an excellent job will cost twice as much as a very good job, and that will cost twice as much as a "good" job, which will cost twice as much as an OK job. That means an excellent job can cost about sixteen times more (2 X 2 X 2 X 2 =16) than a good job! Think about that next time you get a fixed price quote! So you need to decide where you want to be on that quality curve, which is also exponential. How close will you want to look at that paint job to feel good about it? How much will customers want to pay? This fact of life applies to most products and services in some way.
Unlike large companies, where thousands of...
Early-stage companies are the most fragile, have the least resources and the biggest challenges ahead of them. Developing a new business is one of the biggest challenges in life and generally requires experience in at least five key disciplines (product/service development, finance, sales, marketing, and operations) to do well. For a founder or entrepreneur and their team to be successful, they must have not only industry domain experience but all these skills available to design the business at both the strategic and tactical levels (a vision). Taking all these disciplines into account and then allocating resources appropriately for the specific situation among these areas requires much experience and entails many trade-offs and judgment calls. The only experience can be our guide here. Identifying and managing risks is also something only experience and knowledge can conquer. For very early-stage businesses, hiring a full-time,...
I use many airplane and military metaphors, not because I was ever in the military, though I am a pilot, but because there are so many special-purpose planes that can be used to show an exact point or purpose just like a market niche. One of the best models I have seen on how to run a start-up was the development of the SR-71 spy plane by Lockheed’s skunkworks. The SR-71 spy plane was so far ahead of its time, that 30 years after its initial design and development, it was still the fastest plane on the planet. The development of the plane is a great metaphor for a startup company, and the management methods used should be examined by every startup executive as an example of product design and development on minimum resources that yield maximum results. The plane itself is also a great metaphor for a startup company, as you will see below.
The Skunkworks group’s methods and results are a classic example of what can be done...
A tough question that can only be answered well by looking at the big picture. “Tips” implies simple little things, but none of these are tips really. They “must do” things if you want to have good chances of success.
Prepare for years in advance, building your skills in management, domain expertise and marketing/sales.
The CEO & Entrepreneur Boot Camp - CEO Bootcamp US
Get a mentor who has experience as an entrepreneur growing a company successfully
Read at least 2 to 3 books per month
Bootstrap taking your time to build out your plan doing market research, competitive intelligence and talking to prospects and iterating your business model. Be sure it is 100% differentiated and unique, and you can create some sustainable competitive advantage. Without both of these, raising capital will be near impossible.
Set up financially to need no income for 6 to 12 months minimum after you quit your job. Moonlight until you are very clear on the plan and vision, and get...
The short answer is you never should. You should slightly adjust your business model or target market to be differentiated. Read this article to learn how.
A startup should never really have a direct competitor. Its target market, where it can do something that others cannot, must be unique at the start to establish a beachhead in a niche. You need to target another niche market (often an intersection and application and industry sector) where you have a Sustainable Competitive Advantage (SCA).
Sometimes geography can be this difference if a service is delivered locally, or you are going after a country where a new service does not yet exist (i.e. Starbucks). However, this is less powerful than proprietary product and service capabilities that others do not have long-term. You could be attacked locally at any time, even by ex-employees you trained who leave. It is also possible and better to layer in other SCAs over time. First to market can give you advantages like...
Sure, but only a certain percentage. Usually 5% to 15%. These are the ones willing to work hard, develop themselves, learn more rapidly and develop EQ and people skills. Google The Peter Principle to understand better.
Management is an art, not a skill. An art requires vast experience, and literally rewires your brain neuroplasticity over the years. See Malcolm Gladwell’s book Blink. You cannot learn it in school. Only practice it for many years to hone your talents there.
The fact is, most people are lazy and do not want to continue to develop, think for themselves and excel. Only that do should be allowed in management. This is called “Self-Actualized”.
Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship...