Most Startups Fail. These 5 Tips Will Help Make Sure Yours Doesn't. A majority of startups don't make it long enough to sustain themselves on real profits. If you want to make sure your startup isn't one of them, take a look at these five practices I've observed from successful, thriving ventures.
By Zain Jaffer Edited by Kara McIntyre
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If they've not been subject to this exercise themselves, most founders have heard of the classic incubator trope: Look to your left, look to your right, and only one of you will successfully make it to market. As far as clichés go, it's fairly accurate — but I've come to learn that it's actually strangely optimistic. After all, only 10% of startups last long enough to sustain themselves on real profits above their initial costs.
Luckily, we know more now about what brings startups down than we did in the dawn of the entrepreneurial era. A study of 101 startup failures showed that 42% of these failures to launch were due to an absence of market need. Even a startup with experienced founders, generous mentors, and available capital reserves will fail if the market that they are entering can't find space for the product or service they're offering.
For good and for bad, there's no shortage of need in the after-Covid market. New problems have come to the surface that are demanding new solutions, and new-to-market teams are in the best position to be agile and inventive in producing relevant answers to the most pressing questions the pandemic has left behind.
To take an idea off of the drawing board and into the market requires a real beginning, a clear direction and, most importantly, a great team. Below are a few practices I've observed among founders who came to be a part of the 10% of ventures that thrive.
Related: 5 Must-Haves for Entrepreneurs and Their Startups to be Successful
The personal market test
Some of the great thinkers have said that if their explanation wouldn't work with a 6-year-old, their work hasn't come to an end. It might not be true that all new products and services need to be comprehensible to a first-grader, but it's worth testing the minimum viable description of an early idea on which a full venture will be built. Ideally, it should be easy to capture and understand. YC Combinator's Paul Graham has said that "organic" ideas drawn right out of the material of life are often the ones that go the farthest. Founders should keep their ideas rooted in their direct experiences and test their ideas around trusted confidants, mentors, family and friends.
Know thy neighbor
With a clear grasp of your market positioning, the study period begins. Founders need to be well versed in the history and the present state of affairs in their market niche. Understanding where other teams have succeeded and failed is free knowledge, and effectively answering to prospective investors or mentors will require a base-level understanding of what's happening in your surrounding industry.
Hire like SpaceX (and start small)
Elon Musk has recently made two statements about hiring that I find powerful. The first was an admission that SpaceX always looks for demonstrable exceptionality among their candidates.
Tech founders should critically reflect on their own list of requisites for their candidates and know that they can find success outside the norms of looking for certain career experiences or specific degrees. How are you allowing your early hires to make their case? What language do they use to convey their fit for the position, or their belief in your larger mission? Musk has also admitted in an interview that he sometimes concentrates too much on brain power and not enough on personality fit; early founders might take his lead and ensure they are attentive to both.
Stash the cash
There's a chronic condition that affects all founders and causes them to underestimate the amount of capital they'll really need to troubleshoot a company that's coming into being. The brain seems to have a switch that causes new teams to cower in the face of large figures and to bring down their initial fundraising ask, whether through fear of diluting internal equity or the understandably daunting task of driving a venture forward that's worth millions overnight. The truth is that it will take more than most people could ever guess to get a company off the ground and to keep it safe before it begins to make profits that exceed its costs. Always ask for more than the number that feels comfortable.
Open the curtains
With a tested idea, an enlightened industry view, a well-crafted team and an excess of capital, it's time to make your voice heard in your industry. Most founders have a proclivity to delay this stage, but it's never too early to start. Greet peers and competitors in your space, introduce your team to the larger corporate world, be clear about your mission and invite industry collaborators or potential candidates who might want to join your team. Speak openly about the need you're trying to solve, what's making you different, and where you might need help.
None of this requires any undue divulgence of business plans or company secrets, but taking a collaborative approach to the economic ecosystem of which you're striving to be a part is an important first step in becoming an industry force. I believe that the willingness to take steps like these, more than any inherent brilliance, will shift those 10% odds in your favor.
