Removing the “U” from startup: Three assumptions to avoid in order to predict or prevent failure
“You” represent the best and only target market: Founders often wear blinkers while segmenting, targeting and positioning their product or service, often thinking they represent the perfect target market. The initial inception of a startup is usually from identifying a solution to “your” problem or a problem “you” identified. We saw this with Dinr and to some extent with Segway. In Dinr the founder didn’t even bother testing out other potential customer segments and only surveyed himself and his close friends who resembled him. Not once did he think to pivot to another market or another version of the service because he was too fixated on viewing himself as the ideal audience. In Segway Dean Kamen identified a global problem to which he believed he created a global solution – he however didn’t bother researching the market and assessing if he truly had product-market fit. He was so convinced by his own thesis that he erroneously assumed that the rest of market would also believe in the same thesis and buy the Segway. He ignored practical uses of the Segway and didn’t bother to refine his targeting to actually sell units.
“Your” risk profile = the risk profile of all your stakeholders: It is impossible to work in a scenario where each stakeholder’s risk profiles align. Often founders are advised to seek out opposing risk profiles in their co-founders or investors so that one can have a broader decision set that is fully vetted out by divergent risk takers. In Curt Schillings case and in the Alvogen case, we saw founders who completely disregarded the risk-taking abilities of their various stakeholders (employees, investors, customers and family members). In Schillings case the failed outcome speaks for itself, however in Alvogen’s case it could have also easily gone the other way. Founders are so confident in their ability to direct their outcomes that they view a high probability of success and a low probability of failure, which makes them, believe that they are not taking risk at all. Perhaps putting yourself in other’s shoes and assessing the risk and reward from their perspective may help founders avoid failures that can negatively affect their stakeholders to the point that they lose their respect, reputation and family!
“My” passion and belief in my start up is strong enough for me to bet EVERYTHING I have on it: This egotistical self-belief is often misguided as we have seen several examples where founders have burnt through all of their savings, personal debt capacities and eventually burnt through their family relationships / marriages. No matter how good an idea or how high the probability of success always set aside some funds to look after you and your family’s needs in case the worst happens (even if you think there is virtually zero probability of occurrence). While passion is a required ingredient, it is equally important to understand when to turn it off. This undying belief in one’s self and in one’s idea leads founders to believe that external stakeholders like investors and board members cannot fully understand what they are trying to achieve. This also causes founders to delay dilution and giving up control by trying to bootstrap/self fund (Further leading to catastrophic losses if it fails). While bootstrapping is perceived to be positive, if small sequential failures continue to be bootrapped by founders, then raising subsequent rounds of external funding can be very hard as we saw in Schilling’s case. Founders must understand that investors make up the marketplace of their startup and therefore their judgment and counsel is extremely important to see a startup succeed. If you run out of capital and your investors are no longer funding you then this is a clear sign that perhaps your business is not worth continuing. We often hear from successes like Airbnb about how 100s of investors rejected them until the day finally came and they got funded and the rest is history. However, the other 99 failures never saw their day!
The common theme in the above assumptions is “You”, “My” and “I”. There come’s a time in every startup’s evolution where the founder has to be able to extricate him/herself and view the business from a different vantage point to truly assess whether to fail or continue.
Fail early gracefully or look beyond “yourself” and learn how to pivot in order to persevere.