I moved to NYC twenty years ago to create a company around a new idea, something audacious, and I had no reason to think it would result in anything other than life-crushing failure. Despite everything we did wrong and a healthy dose of bad luck, it worked out rather well. We changed the world for the better, or so it seemed at the time, and made some money doing it.
Rather than use that success to migrate into larger, bolder opportunities I instead continued on the highly irrational path of creating, investing in, and working with startups. I have been a founding executive, a non-founding executive, been coerced onto boards, and mentored hundreds of wonderful and not-so-wonderful entrepreneurs.
The odds are stacked against people who want to create value out of nothing, who want to do something new, who see how the world could work a little differently, a little better, and are willing to get off the couch and make it happen.
Its not easy, it never has been, and it likely never will be, yet I admire the fools who try.
I recently gave a talk in Istanbul where I tried to summarize everything I have learned through countless mistakes over 20 years of experience. After working with hundreds of companies, you learn to spot the patterns of failure pretty quickly. Lots of pundits pontificate on this topic. For this talk, though, I thought I only had 5 minutes, for an audience of non-English native speakers. I had to be pithy, and I wanted to describe actionable solutions applicable to everyone. What problems do i find with the largest number of entrepreneurs, and how can they avoid them?
This is what I came up with. Its nothing original. I have made most of these mistakes myself at some point or another. While I was forced to identify these mistakes and find solutions in relative isolation, many industry pundits have elaborated on these points before. Stacks of books are dedicated to some of these topics. Even so, its surprising how often i find myself being the first to mention these pitfalls and offer solutions.
Pitfall #1 You Think You Know
Ignorance is dangerous and costly, but much less so than knowing something that is untrue. When doctors misdiagnose and treat the wrong disease, or when entrepreneurs proceed on a path out of conviction rather than evidence, its mostly a disaster.
I disagree with the popular myth of the entrepreneur as a fearless risk taker ignoring naysayers to persue their dream. Successful entreprenuers I work with have a detailed and perhaps unique understanding of a real problem, gained from answering structured questions with real data, from real customers.
How can you be sure you are not making up your own truth? The solution that has been working for civilization for quite awhile now is to apply the Scientific Method. Create a question, run an experiment, and reach a conclusion. Whether your idea involves, software, hardware, mobile, physical goods, its never been easier to collect real information. Run leadgen campaigns on Facebook or Kickstarter to see if anyone cares about your product or service. Buy people some coffee and interview strangers. Run Google adword campaigns to test messaging and find target audiences. Print a physical mockup on your Makerbot and hand it to people at a park, video all their reactions on your smartphone.
Once you are open to collecting objective evidence to support your idea and plans, you are on the right path. Or at least a better path.
Pitfall #2: The Idea is Everything
This is just wrong. Ideas are necessary, but hardly sufficient. Believing the idea is more valuable than it is leads to silly behavior and replacing solid planning with wishful thinking. For every great company there were countless people with that basic idea. Most people never did anything about it, and a few more messed it up in the details.
A figure I have heard from investors who focus on specific industries, like drugs or medical devices, cite 5% as the maximum value of the idea relative to all the costs that go into creating a successful exit. 5%. That’s it. So get over your great idea and move on to making it happen.
Pitfall #3: Product is Everything
I encounter plenty of teams feverishly working on a product, thinking that if they build a great product and launch it, everything else will fall into place. Its easy to understand why. After all, product development is more fun than a lot of other things you might have to do, and this does seem to work sometimes.
I also see plenty of teams launch, and then fail anyway. A lot of that failure might be avoidable if they had simply approached the problem a little differently.
Before you work on your great product why not take the time to answer a few questions first. For whom is your product intended? How do you reach them? What does it cost to acquire those customers? When and how do you extract value? How much?
In his book "Disciplined Entrepreneurship" Bill Aulet proposes 24 steps to creating a startup. Describing the minimal viable product, just describing it, is step 22. Rounding that, its the last 10% of what to do as you are getting started.
No matter how little time you think it takes to make a great product, surely answering and validating the answers to a few questions will take a lot less time?
Pitfall #4: The Founder is the Typical User
It sounds crazy, but I meet plenty of companies where the founder makes all product decisions. I used to be that founder, so I can tell you from first-hand experience, its horrible to work with people like that. Its demoralizing for the product team, creating a product for simply one user in the office, unable to add value without talking to that one person. Product decisions become highly charged personal arguments between team members, and the results are based on who screams loudest. Its even less helpful to the marketing or sales team, trying to implement plans to reach the one user for whom the product was designed, who already knows about the product.
The solution is product design based on User Personas. User Personass or User-centric design was thought up decades ago by one of my heroes, Alan Cooper. You can buy books about this. Its the single most valuable idea I remind people about.
Simply, you make up a structured story describing different types of users, or sometimes even non-users. Focus on describing a user’s goals, wants, needs, capabilities, fears, motivations, and where they find solutions. You can either make up the description and then try to validate your guesses with real evidence from surveys, focus groups, etc… or extract the descriptions from interviewing potential users. There is a healthy debate about the best way to do this, but trying out any User Persona methodology is vastly better than not.
Getting User Personas right takes some practice. They do not work if they are too vague, or too specific. They need a certain amount of detail, but not too much. They need names, too. You know you have them right when you hear your product team saying “Lilly would love a feature that does…” and your marketing team saying, “William would respond to messaging that says…” Most importantly, user personas take a lot of the emotion out of feature discussions, leading to better product decisions.
Pitfall #5: Can’t Clearly Describe the Product
I have come across plenty of startups with employees, maybe even multiple rounds of funding, where the founders can’t clearly describe what they are building. Oh, plenty of words come out of their mouths, they can talk for minutes or hours about what they are doing, but when they are finished I still have no idea what they are trying to build, for whom, or why.
I have been there myself. Sometimes, the closer your are to something, the more difficult it is to extract the parts of your idea that are really valuable to others. What is interesting to you as a creator may not be what is most interesting to others.
The solution is to understand the difference between “grabbers” and “holders”.
A “grabber” is an idea or feature that brings a new user to your product.
A “holder” is something that keeps them happy after they use it.
Take everything you want to say about your product. Write them as bullet points. Now, classify them as “grabbers” or “holders.”
Grabbers are things that somebody needs done or wants to do, like “rent a car for an hour” or “reduce your energy bill” or “Get takeout delivered to you house without talking on the phone.”
While they may be interesting or even vital, holders are not something anybody wants in isolation. Holders might be “intuitive design” or “works from Android and IOS” or “lowest cost.” None of these are important until you first grab me with why anyone cares about what you are doing in the first place.
Never talk about holders outside the company. Ever. Founders love to focus on holders, but outside the company, nobody cares. Focus on the grabbers.
Pitfall #6: Financial Plans Based on Events, Not Goals
Sometimes its funny how disconnected entrepreneurs and investors can be.
Founders tend to think of goals as events, like a launch or hiring a team. Investors don’t care about goals like these. Founder-type goals are just a means to the end, the end being to make investors more money.
Wouldn’t it be better to make money without betting on industries or products or teams and stop reading pitch decks all day? Of course it would! Early stage investors decided that the best way to make money is to invest in startups, obviously, but their goals for your company can be defined by metrics, like attracting users, achieving a substantial growth rate, revenue growth, or some measure of, or proxy for, value creation.
Plenty of startups make it to launch but then struggle to validate any investor-type goals just as they are running out of money. They are then stuck raising money after most of the hard work has been done, and exactly when they have the least to show for it. Not good for the founders and easily avoidable with better planning.
Shockingly, many startups don’t even think about their goals post-launch. If you ask them, “after you launch, what does success look like?” they can’t even answer the question. Sometimes things just work out better than you ever could have expected, and this line of thinking would be a waste of time. For the rest of us, the 99.995% for whom immediate runaway success is not the outcome, defining what we want to accomplish is absolutely vital in helping us figure out how to accomplish it.
Do you have the resources, ie. money, to get to launch and still have funding to get past that validation phase, and then raise more money? If not, can you get to launch faster? Strip down your minimal product? Or maybe you can test value creation without a product at all, with a leadgen marketing or Indigogo campaign?
Another way to approach this is to create your next pitch deck. Imagine what you would be telling potential investors as you enter your next fundraising cycle. What have you accomplished? How have you measured that? What are you going to do next, and how do you measure that?
Run it past your investor friends or your existing investors. If that pitch deck were true, would they want to invest (more)? If not, maybe its time to rethink your goals and how you are measuring them.
( Reid Hoffman recently published a better written and more thoughtful article on this idea: http://reidhoffman.org/linkedin-pitch-to-greylock/)
Pitfall #7: Lack of Focus
Startups are hard. Really hard. At every step of the way they just get harder.
Startups are chaotic, too, and its easy to get distracted. Its difficult to decide what is important. Getting distracted from the important goals, though, will make everything that much harder, and will waste time and money that startups never have.
When I sit down with an entrepreneur, I can often find about a third of their work that does not yield any results that they care about. You lose perspective when you are in the thick of it.
So how do you avoid this pitfall? It sounds easy, it will make sense, and you will be surprised at how difficult this is.
Rank order the goals you think are important (its also a good idea to write down how you measure the success of your goals). Cut off the bottom quarter. Then make sure everything you do is justified by your list of goals.
So there you have it, all the wisdom from 20 years of painful mistakes in less than five minutes. Some people asked, “did this apply to Instagram? Tumblr? Snapchat? Wouldn’t those guys be wasting their time worrying about these pitfalls?” Maybe, maybe not, but that’s missing the point. These pitfalls are trapping plenty of companies that are failing but could succeed if they got out of their pit. They will probably fail anyway, that’s how it goes for startups, but getting out these pits will at least make the effort more fun. And no offense, if you knew how to create an Instagram-like exit, you are wasting your time listening to me, so I am assuming my audience is in the user persona of “people who do not know how to create with certainty the next Instagram-like success story.”
I probably said this better live, but at least you didn’t have to travel to Istanbul to hear any of this. You should go sometime. Its a great city. Just don’t go there to listen to me.