The Warning Signs Of Failed Startups
Predicting Startup Failure
When it works it’s great but sometimes it doesn’t work
After years and years of working with a variety of entrepreneurs, students, alumni and other folks in the venture community, we noticed some patterns.
There are some clear patterns that failed ventures have. We felt it was worth trying to package that and communicate that to those who are trying to start something so that they avoid what we call the icebergs and “debt bergs” that can sink them and contribute to failure.
The 4 Hidden Debt Oceans
- Human Ocean
- Marketing Ocean
- Technical Ocean
- Strategy Ocean
We have the human ocean, the marketing ocean, the technical ocean, and the strategy ocean.
And each of those oceans has one or two big things that can really bring you down.
The Curse Of “Thirdsies”
The Human Ocean is the risk that comes in the beginning when the idea is formed among the founders and advisors.
How do you allocate the equity at such an early stage?
Imagine, you have three people sitting around at the bar drawing something on a napkin and they’re like, ” Hey let’s split it equally three ways, It’s gonna be fantastic”.
So what ends up happening? One of the three gets distracted by life and jobs and not really as focussed as the others had expected them to be.
But you’ve already allocated all of this equity, and it’s very difficult to deal with that down the track
A More Pragmatic Way To Allocate Equity
There are ways to address that by making sure you have a vesting schedule so that you earn that equity over time as you make contributions to the venture.
Hold Up….Do People Actually Want This?
I think that sometimes technical founders get so excited about the technology or the product that they go way down the road without making sure that they fully understand the problem and the customer’s perspective of the problem that they’re trying to solve.
So we really encourage founders to get out there and talk to customers and to present their solution to them.
Talk to them about the problem, and either observe or have conversations that’ll allow you to understand the perspective of the customer. What’s the language they’re using? What are their current solutions? Do they even recognize they have a problem?
Because if you have to educate your customer about a problem that they didn’t even know they had It’s gonna be a much longer and more expensive endeavor to get them to appreciate your solution.
How To Test Your Idea First
You want to avoid prematurely going with the solution, as opposed to going and talking to a prospective customer to get their understanding of the problem.
This needs to occur much before the technology development takes place.