People use the term “startup” in a number of ways. Let me begin by telling you what a startup is to me.
A startup is not a business, yet. A startup is a search for a business system that will work. Launching a startup is different from starting a business. You can start a business in several ways – buying a franchise or opening a small business based on an existing model (e.g., butcher, baker, candlestick maker) are two popular options.
Startups are a way to find a business you can launch. It’s a subtle, but important distinction. The goal of a startup is to not be a startup for long – but to blossom into a successful business. This leads to some important challenges and potential failure points:
1. Some assembly required
In a startup, you have to create everything. There are no processes, no payroll or accounting, no manufacturing, training … nothing. That doesn’t mean you can’t outsource (hire an accountant) or leverage existing resources other have built (buy a marketing program), but identifying and assembling all the parts and pieces is your responsibility.
Where things go wrong
It’s easy to focus on the things you love, the idea that motivated you to launch your startup and not put the rest of the critical elements of your business in place. The “big idea” is not enough, you need to build a functioning business. It’s equally easy to believe you can do it all yourself – leading to the next challenge startups face:
2. Putting the band together
Money is tight for most founders and no founder wants to give up precious equity. You (feel like you) don’t have money pay anyone and you’re reluctant to “give them a piece of the business” (equity). So you decide you can figure it all out on your own.
Where things go wrong
In our experience, successful startups need to do four things: develop a market (sell stuff), fulfill that market (make stuff), manage the money, and build a culture that can do all of that. We have never found a single individual who can do all four of these things. Startups are complex and fragile organisms. Whether you take on a co-founder, hire employees, get advice from trusted mentors, or form an advisory board – you need to get the perspectives and experience to navigate complex road from startup to business.
3. Are we still friends?
Launching a startup is the second most-intimate relationship most people will enter into in their lives. Founders often turn to friends and family to get the help (free labor) and support (free advice) they need.
Where things go wrong
Founders often forget to create clarity about their expectations of co-founders, employees, advisors, suppliers, and other key personnel. We’ve found at least six different parameters that need clarifying and encapsulated them in a process we call the while we’re still friends conversation™ (but that’s another post I haven’t written yet).
4. Have you checked your runway?
“
Runway” is a term that describes the amount of time and money a startup has before it either needs to take flight or crash.
Where things go wrong
Founders often calculate the runway for their business (how long can I afford the office space, how much more inventory can I buy) but rarely calculate their own, personal runway (how long can you afford to live? what is the true cost of running your life – rent, transportation, food, etc? How will a change in income impact your family?
5. Startups are not a hobby
Discovering a business model that works is hard work. It requires investigating and understanding your markets, supply chains, business conditions. It means building a business model that works – often by building and testing many business models that don’t work
Where things go wrong
Founders frequently underestimate the time and effort required to turn an idea into a product or service, then build and launch a successful business. Lacking sufficient personal runway, they try to shoehorn their entrepreneurial aspirations into their “spare time” (while maintaining their “day job”), but they are unwilling to forgo the kids’ soccer games, the family vacation, or any of the other family and social obligations that consume so much of their time.
6. Dolla dolla bills Y’all
It’s all about the investment. Founders often believe their idea is the key (“I have a great idea, why aren’t I rich yet!”).
Where things go wrong
People watch too much Shark Tank and think TV is a reflection of reality. They dream of sketching out their idea on the back of a cocktail napkin at a chance meeting with an investor and leave with a $250K seed check. The reality is most startups and small businesses launch for a lot less and do not depend on external investment. many startups need to bootstrap. They will never meet the criteria for professional equity-based investment. These companies need to find a path to revenue based on founder resources, friends and family financing, and careful use of credit. Too often founders spend time and other limited resources chasing investment dollars that will never materialize.
7. Failure to launch
At the beginning of this post, I said that a startup is not a business. It is the search for a sustainable and profitable business model that will meet the needs of the founders, employees, and investors. Startups spend a lot of time spending more money than they make.
Where things go wrong
Founders fall in love with their ideas. They adopt an “if we build it they will come” approach to getting their startup launched. One of the biggest reasons early-phase startups fail is because they build the perfect solution to a problem the market is not willing to pay for. Founders often expend massive resources – including maxing out credit cards and pledging home equity – into building elaborate prototypes that no one cares about.
Light at the end of the tunnel
This post is not meant to discourage entrepreneurs – especially startup founders. It is meant to provide a realistic overview of the challenges and complexity founders are likely to encounter. The good news is that you don’t have to figure it all out by yourself. There has been a lot of research into startup successes and failures – which means you don’t have to make those same mistakes.
Here are a few hints to make your startup journey more successful:
- Find a framework – lean startup, the business model canvas, disciplined entrepreneurialism, or any structured approach to startups
- Follow the framework – it’s not enough to understand the framework, you have to actually do the work. Most importantly get out from behind your desk and talk to people – potential customers, suppliers, competitors, investors (ask for advice and you might get money)
- Learn on the cheap – Test with small, inexpensive “trial balloons” before you make a big investment in expensive prototypes, infrastructure, inventory, Saas platforms and other massive capital outlays.
- Be a part of the community – engage in your entrepreneurial community – either locally or virtually. Find entrepreneurs, not wantrepreneurs. That is, find others who are doing the work and willing to share their lessons learned, not those who never have a setback because they are still in the planning phase.
Launching a startup and transitioning it into a sustainable, scalable business can be a fulfilling and rewarding experience if you follow the process and listen to the market. Remember businesses come and go, but entrepreneurial skills build. Focus on learning and making better decisions, not sticking to your dream even after the market delivers a firm “no!”
At Logika, we’re committed to the craft of entrepreneurialism and its role in improving careers, organizations, and communities. Contact us to learn more about how we can take you to the next level!
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