8 ways to avoid founding a startup that fails
Thinking of making a leap into the startup world? You should familiarize yourself with this daunting statistic: Three out of four startups flop. Creating (or joining) a new company is a risky move. And yet, there's no doubt we need new, innovative ideas to drive the economy and create smart solutions to our most pressing problems. So how can an entrepreneur improve her odds? Learn from the failure of others. Here, a few wise lessons from startups that fell flat:
1. Don't do it just for the sake of launching a startup
From the outside, the startup world can seem enchanting. The college-dropout-turned-billionaire success stories, the frothy Silicon Valley lifestyle, and the possibility of creating something world-changing all paint a very glamorous picture. But wanting to be a part of a culture is not a sufficient reason to launch a startup, advises Kyle Forster, co-founder of Big Switch Networks. Early on, the company had what Forster calls a "near-death experience" when its biggest potential partner acquired Big Switch's number one competitor. Today, the company is thriving, but bringing it back to life taught Forster a lot of lessons. "The biggest mistake I see people make is doing a startup because they want to do a startup, not because they have a great idea," he says. Don't be hasty. Instead, take some time and let your ideas percolate until the best one bubbles to the top. "If you don't have a great idea just find somewhere else to work, get a good paycheck, be comfortable while you develop a good idea," Forster says.
2. Make it easy for people to leave
In the beginning stages of a startup's life, some employees won't believe in what you're doing, or will prove to just not be a good fit. That's okay. "Not everybody is cut out for the whole journey," says Ambarish Mitra. Now he's the CEO & co-founder of Blippar, a successful image recognition and augmented reality ad platform. But between 2001 and 2009, he saw three of his previous companies fail. He says employees who leave on good terms can remain brand ambassadors. "Manage their exits gracefully and financially support them and reward them for their hard work," he says.
A generous exit package and an understanding culture play a big part in this process. "The group that stays is more in-tune with what the new organization has to look like," says Forster.
3. Plan for tomorrow, not next year
When Big Switch hit bottom, Forster realized the value in baby steps. "We had to stop thinking a year in advance or five years in advance, and just think about tomorrow." It's a good lesson for young companies: Don't get ahead of yourself. Long-term plans are great, but you also need to be ready to handle a crisis tomorrow. "Even in good times there are still glitches or problems," Forster says. "When things go bad, just pull it back and go back to planning a month in advance."
4. Admit you can't do it alone
Mitra says a founder is only as good as the team he hires. His metaphor: "You cannot fire a missile from a kayak. You need a warship. If you fire a missile from a kayak, it will drown with you on it. But if you fire from a warship, you'll have a solid foundation." Share the responsibilities of building a company, distribute the effort, and "work with a lot of smart people other than yourself," he says.
Melissa Tsang, former founder of Cusoy, a curated restaurant finder for people who don't eat gluten, said not having a team was exhausting. "Without anyone else to keep me accountable or really caring about Cusoy as much as I did, it was hard to deal with all my self-doubt and still persevere on when I was essentially my own cheerleader," she wrote.
5. Know your competitors inside-out
A new company has to know what it's up against, but understanding your competition is also a good way of getting new ideas and staying relevant. If you're thinking of launching a startup, "pick the number one competitor you're gonna have and go work for them for a year," suggests Forster. "You'll get so much intelligence and get paid to do it. Even if you aren't willing to work for the company for a year, at least do a bunch of job interviews for a competitor and see what it's like." If your company is already up and running, keep your finger on your competitor's pulse by monitoring their website, social media accounts, and reading any media interviews they do.
6. Ask yourself if you would use your product
If the answer is no, you might want to reconsider. You'll need to be your company's evangelist, and building something for an audience to which you don't belong is a set-up for lackluster pitches and a skewed perspective of how relevant your product actually is. Yash Kotak, whose startup Lumos bit the dust earlier this year, chalks this up as his number one mistake. The company produced "smart internet-connected switches that learn from user behavior and automate all the electronic appliances in a home." The problem? None of his team used these kinds of products or knew anything about the market. "Had we been users of existing smart switches, we would have known that the incremental value that our product was offering was quite low," Kotak writes.
7. Know that the product comes first
"Everything else is an accessory," says Mitra. While it can be tempting to spend money on things like fancy business cards or marketing, that's getting ahead of yourself.
Martin Erlić says this is one of the mistakes that led to the downfall of his fashion startup, UDesign. "We spent everything we could have spent on polishing the product itself on marketing instead, under the assumption that we could finish whatever tasks remained effectively ourselves," he writes. "It just wasn't true. Looking back, that extra $4,000 would have made a world of a difference."
"If you can put money toward building the product better, your effort should be that," Mitra says. "A lot of people make the mistake of getting distracted by other things. So in the early stages of the business, having a really good team and focusing on product is key."
8. Be crazy about your idea
In the early days of Blippar, Mitra says many people didn't quite understand the technology. He took this as a sign that he was doing something revolutionary, and powered through. Four years later, the company is expanding and just landed $45 million in funding. "Sometimes an entrepreneur has to go on their set of beliefs and build something with no history because they believe in it delusionally," Mitra says. "You need to be sort of mad about it to make it happen."
For more lessons from failed startups, check out Autopsy.io.