Not The Right Team - Reason #3 for StartUp Failure

I posted previously about the reasons that startups fail (#1 - No Market Need), and followed that up with a post about the second reason (running out of cash). Today, we explore reason #3, not having the right team. This is really reason #1, from my perspective. We pointed out that reason #2 (running out of cash) is really a reflection of reason #1 (no market need), because if there was a market need you would be able to raise the cash. But these both spring, to some extent, from reason #3, not having the right team (or not being the right team, or being insufficiently skilled in putting together a team). This is a really key element of a successful startup; there's a lot of evidence bandied about in the community, and I am not going to rehash it here (but if you can't find it, drop me a line and i'll dig it up for you).

So, what constitutes the "right" team? Ask 10 VC's, get 11 answers...although they will commonly agree that the one thing that they most invest in is "the team". Some thoughts...a passionate founder (or two, even better! - one technically oriented, the other business oriented), some folks who have made the startup journey before (unless you intend to use a lean startup, and stick to the Business Model Canvas methodology, and the prior experience was all waterfall development and traditional business development, in which case the experience (in reality) becomes a negative (although it can still look like a positive on paper)).

When you assemble this team, it needs to function as a team. In the Clifton StrengthsFinder world, they like to say, "people are sharp, but teams are round". The idea is that each person on the team needs (beyond the business competence that they bring to their assigned role on the team), an understanding of their own personal strengths and workstyles, and they need to be able to communicate that information to others on the team as the team is forming. We need analytics, and we need futurists, and we need relationship builders, and we need ... You get the idea; your team needs a lot of different skills, and attitudes, and personality strengths, witht e idea being that each person is using their strengths, and when combined, they make an awesome team.

The reason the team matters is because the reality is that most startups don't bring to market the thing that originally brought them together - they bring some variation of it, or a piece of it that they put into a completely different context, or they keep trying to find a thing that clicks for them until they find it. So, the right team keeps working together to make sure that the thing (whatever it is - product or service) is a thing that the market DOES need, and that they can make others understand, and that investors will want to support. So, it really comes down to the team.

Thoughts? Let me know.

Running Out of Cash - Reason #2 for Startup Failure

In our last post, we talked about the #1 reason that startups fail - solving a problem that doesn't exist (referred to as "No Market Need"). The second reason listed in the September CB Insights report was "Running Out of Cash". There's not a lot of context here, so let's look at what causes "running out of cash". The report doesn't illuminate whether the startup ran out of capital to invest in product, or whether the lack of cash was to sustain operations, or to grow the business to a critical mass where it could support itself. A lack of investment capital is often a mark that the startup is actually experiencing startup failure reason #1 - they are building a product or service for which there is no market need. Alternatively, maybe there is a real need, but the team that has assembled to address the need cannot get traction with investors - either they are not perceived to be capable of making the company work, or maybe they lack the ability to tell the story effectively. Either way, the investment decision often comes down to belief in the Management Team. A super product cannot be brought to market by a substandard team - and whether or not that team is substandard is all perception. If the problem is operational cash, it may be that the entrepreneur in question just does not have good business management skills and cannot anticipate what the sources and uses (especially uses!) of cash are, so they are surprised when they suddenly don't have enough cash to continue operations. Understanding the burn rate of your business, and managing to avoid surprises are important skills to have for this. Understanding when to add staff, when to increase overhead, when NOT to do these things, are important, and can often be solved by bringing established business acumen into the startup. After all, the initial founding team often does NOT include established business skills. But this also does not mean that founders need to hire people to run the business. The founders absolutely have to continue to be involved, and come to understand how the elements of the business work together. Many times, what the founding team needs is coaching or advising about what tools to use, how to use them, and when to use them. This is a better approach than handing these elements of the business over to someone else. Finally, maybe the startup runs out of cash because they have plateaued in a part of the growth curve that is not sustainable. They are acquiring new customers, but the acquisition cost is too high, or the customers are leaving before they attain the targeted lifetime value, causing increased churn. There are a lot of reasons why the business itself might not be running optimally, and these can either be minor annoyances, with easy fixes, or they can be devilishly difficult to ferret out and fix. Either way, a fresh set of eyes looking at the problem is often helpful in figuring out how to tune the business. The problem of running out of cash usually boils down to "No Market Need" (Reason #1), or failing to deploy the cash you have in the right ways at the right times. What are your thoughts on this? Let's chat.

Why StartUps Fail

CB Insights had a post back in September based on an analysis of 101 start ups that failed. It is interesting to note that the number one reason given was "We created a solution that didn't have a problem". In other words, the founders became convinced that they knew who the market was, and that they knew what the problem was, and they sought (unsuccessfully) to push that product down the throat of the market. Markets won't respond positively to that. As a result, the company fails. This is why the Lean Startup exists; the primary focus of our model of mentoring entrepreneurs is to help them find product-market fit. Barring that, our job is to concede that the right thing is to walk away from any attempt to commercialize the particular technology. Sometimes this is about the timing, or the team that is trying to make the fit happen, but it is often a result of solving a problem that simply does not exist for enough people to be an effective market. I'll talk about the other items in the near future...you can join the conversation in the comments!

Creating the Nest

Welcome to the new blog hosted by Kingfisher Consulting LLC. I'm your host, Bill Arnold, and I want to use this space to spend some time talking about Lean Launchpad topics, start ups, entrepreneurship, and innovation. First real post will be up by the end of this week, and you can anticipate one post per week. Welcome to the discussion...