You’ll hear this phrase over and over again if you start spending time with Venture Capitalists. What’s the phrase?
“Startups are very fragile.”
I used to discount that idea when I was younger, cockier, and stupider. I knew what I was doing, or so I thought.
Now I realize just how sage those words are.
There are so many things that can kill your startup when you are starting out. The challenge is you are single threaded in so many different areas that a failure in any one of those areas can knock you out.
What are these areas? Let me give you three to think about:
A. Customer concentration.
Let’s say you have one customer that accounts for 95% of your revenue early on. That’s actually quite possible.
So you staff up to take advantage of the revenue spike. Then guess what happens? Your large customer disappears and you don’t add any additional large customers.
Now you’ve got double trouble because you’re burning at a higher rate, and your revenue has dropped.
What’s the answer? Run your company as if the 95% revenue customer doesn’t exist. Or, if you can’t do that because your business model depends upon large customers, then get as much of the money as you can from your large customers up front.
If customer concentration isn’t the problem, then maybe this is:
B. Your VP Engineering or CTO walks out the door.
I had this one happen, and it almost killed us.
Our VP Engineering quit right before we were going to get funding, so our funding was gone in an instant. The second challenge was we had to replace the VP Engineering.
You are by definition single threaded when you are starting out. So losing a key founder when you are just starting out, and you have a small team can be a killer.
What do you do when you when lose your cofounder? What do you say when you lose your cofounder?
You have to move fast when your cofounder quits. There’s no time for regret. You have to move and find the replacement.
And, at the same time, don’t settle. If anything, you should be looking to upgrade your team each and every time there is a departure.
If your team isn’t the problem maybe this is:
C. Your vendor screws you at absolutely the wrong time.
Of all the things that surprised me starting our company, it had to be the number of times a key vendor screwed us. None of the screwups were malicious, but each time a vendor screwed up it cost us precious time.
What’s the answer? Try and have multiple vendors as much as possible.
For example, in manufacturing our products, we had multiple test and assembly facilities. This strategy saved us multiple times.
I wish we could have done the same thing with our fabs, but that just wasn’t possible in today’s world.
As you can see, there’s a lot that can kill you when you’re an early stage startup. The good news is that you can recover from many of these problems if you jump on the problems.
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