Beating the Odds: Are You the Twelfth Startup?
Written by: Lew Brown, Partner, bluesalve partners, CEO Motum.ai
It's often said that 9 out of 10 startups end up failing, but that's not true. According to Startup Genome, the real number is worse at 11 of 12. The most common reasons for failure are premature scaling and poor marketing. These numbers and the reasons for them are both troubling. If they aren't troubling your startup, maybe they should be. Nobody wants to be a negative statistic.
Venture-led startups are usually subject to multiple, sometimes conflicting agendas that for better or worse, drive business evolution. Obviously everyone wants to make money, so that's agenda item #1. However, VCs are often more interested in arbitraging the public appetite than investing in a business with long term legs. Your startup might have the world's most worthy mission, but it's not always a given that the investors genuinely care. That's not agenda item #1.
Innovation doesn't travel at the same speed as money. It takes time to build products, customer bases and loyalty. Moreover, attaining scale and managing scale are not the same thing. Grow big and grow fast is easy (and self-serving) advice from a VC. Real, sustainable growth is less simple. It means navigating new challenges in cash flow, personnel, marketing, operations, logistics and more. Is your startup executing?
What's Your Market, Really?
An interesting site called Failory has conducted in-depth interviews with more than 80 founders of failed startups. When queried about what caused their companies to go under, the overwhelming reasons – more than half – were marketing related. It's not true that great products are only great if if they're popular. But it is true that many great products never get a chance to become popular because they aren't marketed correctly.
Take the smart home category as an example. For years, that industry launched many compelling products that couldn't find a general audience. The vendors marketed solutions for "home automation." It turned out that most consumers didn't want to automate their homes. In fact, they weren't even sure what that meant. What they actually wanted were task-related solutions like energy savings (enter Nest), easy security (enter Ring) and convenience (enter everyone else). Is your startup marketing the right story?
Beyond Opportunities: Opportunists
Everybody loves a winner. This is especially true of investors and media, both of which are critical to a startup's chances of success. The startups that manage to disrupt big market sectors make for great stories. Big market sectors, however, aren't usually dominated by a single winner. Wherever there's a Coke there's a Pepsi, and beyond that, boatloads of national and regional Sprites, Barqs and Dr. Peppers -- all the way down to Kickapoo Joy Juice, a novelty soda that's still going strong after 55 years on the market. Never heard of it? So what?
The global carbonated drinks market is said to be worth $221 billion. Nobody (with any sense) sets out to be the new Coca Cola. Why? Because the craft soda market was estimated at $705 million in 2020, demonstrating that there's plenty of room in business niches – these are arguably the new mass market. The moral of the story is that aiming for significant niches can be a better model for success than striving for leadership. Market acceptance is not a zero-sum game.
Naturally, startup success depends on many factors, some of which are out of the business's control. That said, the decisions that are within control are crucially important. Is your startup navigating by its heart or its head? Or someone else's heart or head? It's always a good time to ask the question.
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