You can surf the Internet and find endless articles on why startups fail. Most of these articles focus on finding the right market opportunity and some place undue attention on the “DNA” aspects of getting a startup … well ... up and running. By “DNA,” I’m referring to getting the right team together, infusing a level of agility into the structure and process, and so on. It's definitely important to go after the right market opportunity and invest in great, smart people. But, that's kinda like saying you need to be healthy and on the right course to win a marathon.
I want to talk about an area that deserves its own focused coverage – startup myths. Plenty of myths exist at startups. Ping pong tables and free meals. Unfortunately, those are becoming myths.
Much of what you learned or picked up through years of experience working at large(r) corporations are often rendered useless at most startups. This is a hard pill to swallow for some people. Taking the baggage of conventional thinking into a startup leads to frustration or, worse, lengthy paralysis or inaction.
Let’s breakdown a few of these myths …
Myth #1 – THINK BIG, ACT SMALL
Conventional wisdom says that you need to think big and act small. We’ve all read enough of those books emphasizing the importance of strategic vision coupled with extraordinary execution. Unfortunately, startups need to do exactly the reverse – that is, startups need to think small, act big. There is a reason why so many startups get caught up in thinking (too) big. Startups go after VC funding based on the promise of tackling a huge business opportunity. No one likes the thought of investing millions of dollars in an endeavor that aspires to make a few million bucks if all of the stars align. Fair enough.
The minute the money is in the bank startups need to immediately convert “think big” into “think small.” All of the early stage activities of a startup (e.g., identifying early or first customers, developing initial product and iterating, defining a target market, assessing competitive situation, building a go-to-market plan, recruiting people, etc.) are microscopic endeavors. Additionally, there is no such thing as momentum at a startup in its early days as everything is in standstill mode until movement is seen here and there. So, getting people to think small (i.e., focusing on achievable efforts) while acting big (i.e., bringing sense of meaning and purpose) is critical as your startup tries to turn movement into momentum.
Myth #2 – TIME IS AN ENEMY
People often cite that one of a startup’s key competitive advantages is in its speed. Speed to market or its close cousin, the good ‘ole ‘first mover.’ Agility to stop and turn on a dime. Faster decision making. And, so on and so forth. This is not exactly false but it is only true under a few conditions.
I’m paraphrasing here but there is a wise saying that “one needs to lead their life, career, business, etc. with a compass instead of a watch.” More startups fail because it lacks a concrete, discernible direction than because of time running out. Said differently, time runs out because direction lacks. Very few startups that use a compass to figure out where to run – regardless of speed - rarely fail because of time. These startups can go out and literally buy time.
In reality, time is a startup’s best ally. The panic over time running out comes from perceived risks that simply are not there. First, I’ve often seen startups that undergo a certain level of high panic over being the first mover only to discover – after they fail – that the window of opportunity never closed. In fact, I’d argue that there never was a window in the first place but rather just a tiny hole. Imagine looking through that tiny hole at Joe Customer. Suddenly, Joe disappears from your field of view. Your opportunity could vanish just that quickly! Wrong. Use time to widen your aperture. If you do, you’ll realize that Joe is still in the picture but he just moved an inch to the left. Furthermore, you’ll also see that Jack and Jill are also standing right next to Joe. Slow down enough to see the market through a wider – and, more precise – hole.
Second, startups tend to overestimate the competition while underestimating their innovation. Get our product out the door before someone undercuts us! Believe me, larger companies are not threatened by a newly funded startup. They don’t protect their customer base or revenue streams by staying up all night figuring out which startups to blow up. The hardest thing to do is to figure out how to make customers want to buy something better when what they have is perceived to be good enough. Overcoming this enormous challenge is where a successful marketer earns his pay. Your high degree of innovation actually makes it harder to sell and market! It’s also what makes your competitors observe from the sidelines – for now.
And, third, startups often try to stick to their artificial timeline to build and grow the business. We promised X by Y to our VCs so we must crank it out! Wrong. VCs invest money from funds that have various time horizons so they do periodically check their wristwatches. But, great VCs go into a deal knowing that the startup will get many lessons from the marketplace and make many adjustments along the way. They’d rather see a lean team take its time to figure things out and remove the highest order deal breakers such as technical risks and market risks.
So, in the end, time is not the enemy. Being fat and lacking direction is the real enemy. Fat startups have no choice but to consume a lot of calories (or, money) which, in turn, unduly compresses time. And, lacking a compass always leads to wasted energy – and time. Stay super lean and move very deliberately. Make time your friend.
Myth #3 – LESS HIERARCHY MAKES US MORE AGILE
Unfortunately, this one always rears its ugly head in one shape or form at most startups. Greater agility is an outcome of more freedom, not less hierarchy. And, more hierarchy does not always lead to less freedom. I always tend to challenge people to view hierarchy in light of freedom versus permission.
Many startups flatten their organizational structure only to discover that the business is moving at a turtle’s pace. Why? It’s because every action needs to be permitted and every decision approved by the CEO. You’ve removed the hierarchy but haven’t instilled freedom. Thus, creativity and agility suffers because you’ve slowed everything down – including the CEO.
Recruit seasoned, tireless executives and make them accountable for their teams. Keep the management team small and let them hire specialists under them. Permit these specialists to exercise sound judgment and freedom of action when the matter at hand falls into their immediate boundary. When things fall outside of these boundaries (or, bleeds out), move things along the necessary –and explicit – chain of command so that accountability is not lost.
Myth #4 – MARKET WAS NOT READY
I’ve saved the best one for last. Almost every failed startup uses this excuse – the market just wasn’t ready for us. In truth, the market was ready but the startup may have gone after the wrong market, in the wrong order.
Myth #1 (cited above) is actually closely related to this one. A few startups fail to understand the disjoint between their “market” and “product.” The end result is that they essentially end up building a “small” product for a “big” market. You will rarely see a startup build too “big” a product for a “small” market. Big markets are costly to penetrate and equally expensive to serve.
To put it simply, building an innovative new product with a limited set of features and trying to ram it down the throat of a large market is a futile effort. The unconventional but more effective way to get off the ground is to “think small, act big.” You essentially want to put most of your cost burden on development, not on go-to-market expenses. Build as close to a full or complete product as humanly possible then go after a small (or, urgent or immediate) market. While it’s true that smaller markets tend to have plenty of unique requirements it’s much more willing to forego or limit those special needs than their larger market counterparts in exchange for getting enormous perceived value out of the whole product. Business geeks call this the beachhead approach. Salespeople call this going after immediate opportunities instead of the best opportunities. The underlining priority here is that getting customers – wherever they are and whoever they are – is the leverage you’ll need to profitably grow into larger markets down the road. True, you can’t see the market landscape from a beachhead. But, it’s equally true that you need to capture enough land (i.e., customers) to reach high ground where the view is complete.
Just remember … many horizontal (infrastructure) products can be sold into a vertical market. Doing so, of course, requires (from the outset) business model alignment across the board (e.g., professional services component, modular architecture, flexible pricing structures, appropriate channels, and so on) but it can get you off the ground running and ignite growth later on.
- John
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