Why do most of the startups fail and what should you do to grow your business and stay competitive?
You will find answers to these and even more questions from the interview with business advisor and coach - Bill Flynn. Bill`s experience includes 2 dozen companies with 20+ startups among them. He has been a business advisor for 9+ years including advisory board seats for several companies, a 9-time VP, Sales, GM and CMO.
In addition, Bill has been involved in 2 IPOs and 7 acquisitions and his GM experience includes a successful division turnaround for a $120MM IT services company where he has also served as CMO.
In this interview you will get precious tips for your startup business that will definitely stir you into action!
1. Bill, first of all, why have you decided to help entrepreneurs build a successful business?
I think it is a shame that great people, great companies, and great ideas fail too often for completely preventable reasons. I have become a coach to do my part in my small corner of the world. I love helping organizations figure out as quickly as possible if they are solving a problem worth solving for the right set of customers or not. For the same reasons as startups, I also help those that make it through the product/market fit knothole to scale up the business which is almost a completely different set of skills and thinking.
2. You have worked with more than 25 startups and have probably seen their ups and downs. What are the main reasons that lead to the startup failure and how to avoid them?
There are so many reasons why startups fail. One that I have seen most often is that the founding team falls in love with their idea instead of falling in love with the customer and the problem. They too often become emotionally attached to their idea. They forget that you must make something that enough people will pay you enough money for to make a real business.
Too many mistakenly believe that their job is to convince the customer how clever they are instead of focusing on making something that is easy to say yes to. You want them to say: ”This is exactly what we have been looking for!”
You must remember that they really don’t care about your idea (even if they say they do as people are generally polite) if it does not help them in some meaningful way. The real test is to ask them to write a check. That is when you find out what they really think.
It helps to be aware that they are, like all of us, trying to make progress in their lives and their businesses. They want assistance with that and that is your job as an entrepreneur - to help them to make progress in their lives in the easiest way possible. If it is something that you enjoy doing and it solves a real need for enough people, you have a much better chance of succeeding than others.
Another reason is that you give up. Your commitment needs to be higher than the pain and suffering you will endure. However, you must balance that commitment with knowing when to move on. This is one of the most difficult balancing acts you will ever face. My advice is to give up only when, after you have tried everything you can, you do not find a problem worth solving. Do this by going out and asking all the possible constituencies if they are experiencing this problem today and how important it is to them. If they have the problem but it is way down on their list of priorities, it does not matter how great a job you do at solving it, you will have limited success.
The last reason I see most often is that you just run out of cash. You may do everything right and build something that enough people want to pay for but cannot attract enough additional investments to help you realize your vision.
The problem is, in most cases, those who risk real money (theirs or someone else’s) will be far more conservative than you. They want to see some level of traction before they invest. With this simple truth in mind, I believe that it behooves the founder to do everything he/she can to not need outside investment.
3. We all know that the first thing the startup should concentrate on is the target audience. What are the best ways to understand your target customer?
My point of view has changed over the years on this question. I now think that the problem you are solving is paramount and the target audience comes later. You definitely need to care about and identify your audience in order to start, but it is not always the first thing. As Ash Maurya is fond of saying, “Life is too short to build something no one wants.”
For instance, you may be solving a compelling problem but for the wrong audience. You may pick the wrong target that has little or no interest. However, you may find that with a tiny tweak you are solving a problem or identifying an unmet need for a completely different target audience that is significantly larger.
Let`s take Airbnb for example. Initially they targeted people who needed a place to stay at big political conventions. They had some but limited success. They found that the best possible audience was much broader - people who wanted a more authentic experience when traveling - and began designing their solution to large and popular destination cities in the US. It is important to note that they did not take off until one of the founders spent a good amount of time speaking directly with the “renters” to see how they could remove as many constraints from the process as possible. Exactly after this educational trip, they began to grow into the largest hotel business in the world. This is another great example of why it is important to truly understand the needs of your customers.
4. First of all, the product should solve problems. How to understand that this problem is worth solving?
Conduct a proper Customer Development process. Get out of the office. Talk to your target audience with an empathetic ear. Find out what is important to them - where they are struggling and if/how they are trying to solve the problem today. Please note the Airbnb example above.
5. How can the startup founder come up with the unique solution to this problem?
This is a great question. I have found that they may not be able to come up with a unique solution. In that case, they should move on to another idea. The best way to figure this out is to conduct a proper Customer Development Process for most. Some consumer solutions, especially in software, can do a lot of rapid prototyping with an excellent feedback loop process and iterate their way without Customer Development. However, they do have to engage the customer at some point as the feedback they get may be misinterpreted and lead them down the wrong path.
6. What are the 4 best ways to test your idea before pushing the product into the market?
I am sure there are lots of different ways that work. The two that I am most familiar with are the two I have already mentioned:
- Customer Development
- Rapid Prototyping with feedback loop
7. Bill, what in your opinion is the most critical moment the startups face? How can they overcome it without giving up?
Most failed startups try to scale too fast. They do not realize they are not a real business yet. Steve Blank defines startups as "temporary organizations in search of a business model". Until they figure this out, they should resist scaling. Growth is the silent killer of most startups as well as scale-ups (especially if you do not have a ton of cash in the bank).
3 out of the last 4 startups I worked with fell into this trap. They thought they were on to something because that got early positive feedback and their investors were pushing them to scale and hire. None of them really understood what problem they were solving and what was the best way to solve it.
Tragically, one of these failed startups identified a market ripe for disruption. The customers were dissatisfied with the current solution and were looking for alternatives. The product was pretty solid and the small set of initial users were relatively happy. However, they didn`t realize the entirety of the problem they were facing.
While the prospects were dissatisfied, that level of dissatisfaction was not enough to get them to switch to this brand new solution. The current solutions were good or not terrible enough to get them to take the leap. To illustrate this point, there is a general change formula that has been around for a while.
Dissatisfaction x Vision x First Steps > Resistance.
All change creates resistance. Startups are typically disruptors which means they force change to happen. The way to affect change is to overcome the natural resistance to change.
BTW - this formula applies to change within organizations as well - really, any change process. People have different tolerances of giving up so I am going to stay away from that one. However, my advice it the same as above, find a problem truly worth solving, be humble, curious and empathetic. If you can do that, you will either pivot your way to some level of success or reach failure faster wasting significantly less time and money.
8. If you could give a startup only one advice, what it would be?
Focus relentlessly on two things to start:
- Product/market fit
- Do not run out of money