Why Startups Fail

This morning I was reading a 47Hats‘ Blog post about this  book: Why Startups Fail: And How Yours Can Succeed, By David Feinleib, VC, Entrepreneur.

This post mentions a number of very good, although pretty common, points of failure and  advice for startups. It goes like:

Startups fail for many different reasons. Turn failure into success by avoiding some of the most common causes of startup failure:

1. Failing to drive demand
2. Building a product people don’t want
3. A lack of passion
4. Running out of money
5. Scaling too fast
6. Small markets
7. Failing to focus

It also makes very good points like:

1. Failing to drive demand – Too often, entrepreneurs focus on what they’re going to build but not on their go-to-market strategy. Imagine that your product is already built. It’s done, and it’s ready to go. Now what? What is the tagline for the product? How are you going to market it? What’s going to drive massive adoption? …Figuring out how to drive demand for your product is just as important as figuring out what product to build. Inefficient, unleveraged distribution can kill a startup…

This is Dead On. Absolutely right.

Still so many keep falling in this trap. Incredible.

2. Build Something People Want – …Many entrepreneurs spend months or years building a product only to find out that few people want it. How does this happen?

The short answer is: it happens because making sure you have nailed down the right product for the right buyer in the right segment is harder that you think, so you haven’t dedicated time and budget for it.

Unless you have done fatal mistakes like forgetting completely about funding or picking the right people you need, the first two points are in my experience, by far the most important ones. Not only.  I would reverse their order of importance. Therefore I will start with the first one (and leave the second one for another post).

1. Build something that people want, and are willing to pay for – very often there is excitement around a new product or service or idea, you get great feedback from peers, friends, family, former colleagues, your early investors. Then the product hits the market and… there is no one willing to pay for it. “Where is everybody! They loved the idea!” . Here is the disaster. Most likely, irreversible.

Now, you just cannot take this risk. You can’t go head down with technology forgetting who your prospective buyers are, what they like/dislike, what is their attitude towards things that are relevant to for your idea. This applies for both consumer and enterprise products. You need to find something that solves a problem, satisfy a clear, painful need, does something 10-100x better than it’s done today,  or just creates desire such as the iPhone (good luck with that).  Then you build a message around the product and what it does for them. Not your technology, not you, them. Your buyers. Your users.

Mr. David Feinleib in his book’s puts a lot of emphasis in driving demand. “Figuring out how to drive demand for your product is just as important as figuring out what product to build“.

I agree. How to drive demand should in a way be part of the new product development process (I am not talking about code here) since the beginning.

Two examples by the same author:

• Consider file sharing service Dropbox, which gives free space to existing users when they sign up others. The company now has some 50 million users.
• Or think about social game maker Zynga, which builds games that require the participation of friends. Zynga leveraged the Facebook social graph to reach hundreds of millions of players. Marketing is no longer separate from product—it’s built right in.

Let me underline a key statement:

Marketing is no longer separate from product—it’s built right in.

Dead right! And more applicable than you think.

So what is my point? Look at the two key points above. They have one thing, one, most important thing in common. The buyer and her willingness to pay for something they want (because of a desire, because of a pressing business problem).  If you are able to capture the buyer and then  channel his  voice in clear, precise, compelling, persuasive and “enchanting” manner, both the product and the demand can be derived and/or enriched by the most powerful asset you may have in this business.

An intimate knowledge of the buyer.

Getting to know your buyer or your primary user is not easy. There are techniques and skills involved. The best technique by far, that joins effectiveness with low investment is “crystallizing your buyer and user personas”. I have seen this methodology changing completely the game, getting products to success, getting motivated, excited (enchanted, using Seth’s Godin’s words) marketing people, managers and sales people.

Here is some food for thought

• Good news: it works great, always.
• Bad news: it’s not easy. Requires live interviews, skills, competence.
• Requires a “get out the office and go meet your buyers” kind of attitude
• What is the business problem that we aim to solve? (Not the solution we have identified and that we want to “push”)
• Is it urgent and critical?
• For whom? Who has this problem? Be specific.
• Describe the Buyer. His priorities. His success metrics (revenues, not getting fired, be promoted, make more money for his practice, etc).
• Research and describe demographic attributes, habits, behaviors, attitudes, perceptions, emotions and reactions.
• Is there anything that can’t make her sleep at night? What is that?
• Create a lifelike description of the Buyer persona and share it with your team. Do they recognize her? Iterate. Interview face to face, iterate.

A buyer persona guides us to create solutions that resonate with buyers, do not require useless and expensive promotion channels and huge investments on sales to “create a need” (this does never work anyway in the long-term). If well done, we will be able to see the world through her own eyes so we can create the right mix of “product and demand creation engine”.