Did you know that it took me three founding teams before I was able to get the right team to start my company? It’s true.
Team number one failed because my two cofounders quit and stole the intellectual property of the company and left me for dead the day before we were going to get funded.
Team number two failed because the team wasn’t strong enough.
Team number three succeeded because we had the right combination of people that had the same vision and meshed well as a team. And yet, two of the five founders were out of the company within one year of receiving funding.
Is it any wonder that most startups fail?
What are the numbers? Depending upon the survey you read, anywhere between 70% (http://www.bizjournals.com/sanjose/blog/2012/09/most-startups-fail-says-harvard.html) to 95% (http://www.huffingtonpost.com.au/wenee-yap/why-95-percent-of-startups-fail-and-how-to-be-in-the-winning-5/) of all startups fail.
Do you want to be another one of the startups that fail?
Good. I didn’t think so.
Here’s my list of some obvious and some, maybe, not so obvious reasons that startups fail. The good news is you can recover from many of these mistakes or problems. So, let’s get started:
A. You have the wrong team.
As I pointed out, I went through two teams before I got to the right team. But I was lucky.
You may not be so lucky. So here’s the most important advice I can give you:
Don’t settle! Especially with founders, don’t settle.
You need everything to be right between yourself and your cofounders if you are going to succeed. This doesn’t mean you can’t have differences between yourself and your cofounders. It does mean that you need to have mutual respect.
You’re going to want your cofounders to have integrity, be smart, be passionate about the company, and be cultural fits for the company. And the tough part is that some, if not all, of these traits may not be obvious when you bring on a cofounder.
That’s why some cofounders leave a company early on. It’s natural and normal to have a cofounder leave. Just protect yourself and the company (For more, read: www.brettjfox.com/what-are-the-eleven-steps-you-can-take-when-a-co-founder-quits/).
B. Your company culture’s not right.
Maybe I should have started with company culture because you need to be thinking about your company culture before you bring on your first cofounder.
A commitment culture (Read: www.brettjfox.com/why-your-startup-culture-is-the-key-to-your-companys-success/) where your team is truly committed to the company is the culture that gives you the most chance of success. And that commitment culture starts with you.
You need to foster this inclusive culture every step of the way. Every new person you add to the company either reinforces your commitment culture or hurts your commitment culture. That’s why you want to be very careful with who you bring into the company.
C. You don’t have a go to market strategy, or your go to market strategy is poorly thought out.
It’s not enough to have a great product. The days of “build it and they will come” are long gone.
Having a website is not enough. Having a sales force is not enough. Saying you’re going to advertise is not enough.
You really need to think about how your customers are going to find you. And then, you’re going to need to figure out how much it’s going to cost you. The best book I’ve read on the subject is Traction: How Any Startup Can Achieve Explosive Growth by Gabriel Weinberg. Traction gives you a systematic process to figure out what marketing channels will work for you.
D. Financials? What financials?
Be honest. How many of you don’t really know how much money you are making or losing?
I’ve seen the lack of a financial plan or a poorly constructed financial plan bite a lot startups. Okay, so here are some basics to think about.
Are you paying yourself a salary? You should be, even if it’s a small amount because you don’t want to just take money out of the company when you need it.
You should know EXACTLY how much money you are spending every month. You should know EXACTLY how much money your product costs to make.
You should know when (what year/month) your company will hit cash-flow break-even. You should the revenue level at cash-flow break-even.
So develop a financial plan today if you haven’t. It doesn’t have to be complex.
So, what’s the one mistake that’s almost 100% guaranteed to kill your company?
E. Investor/Company Mismatch.
The one absolutely, nearly 100% guaranteed company killer is a bad investor.
What if Apple had 50% of its shareholders wanting the company to sell?
Or, let’s say you received a loan from your parents to start your company. All of the sudden, your father wants his money back?
Or, let’s say one of your investors can no longer support the company? And you have no money left to operate?
How do you recover if you are in any of these situations? The answer is you usually don’t.
So choose your investors wisely.
Make sure your family understands up front how long it’s going to take for you to pay them back if you take money from your family. Be honest because it likely will take several years.
Make sure your vision for the company is the same your investor if you take money from an Angel or VC. Really observe how you are being treated during the fund raising process.
Do your diligence on your investors. Talk to other people that have taken money from them. Did the investors hang in for the long run or did the investors cut bait at the first sign of trouble?
And, most importantly of all, get a lawyer! Even if you’re taking money from your family you should get a good, knowledgeable lawyer to draft (or evaluate) the agreement so it is fair. I know getting a lawyer can be expensive, but this will be money well spent.
There are things you just don’t know as a first time entrepreneur.
Some of these errors can make it very difficult to succeed. You can overcome team issues, culture issues, go to market issues, and lack of financial discipline. But a lack of investor support, be it your family or more traditional investors, can you make it next to impossible for you to succeed.