Why Too Many Startups Stink

They fail by trying to solve non-problems.615_500_Startups_Reuters_2.jpg

A young entrepreneur attends 500 Startups, a crash-course for young companies in Mountain View, California. (Reuters)

While statistics are weak on startup success rates, the worst one I've seen suggests that 2 in 1000 venture-backed startups will ever achieve $100-million or more in valuation. Another stat puts that number at 2% rather than 0.2%. Either way, the "hurdle" for successful, scalable startups is high, and it gets higher every day as customer acquisition challenges continue to increase.

I've spent more than four decades founding, coaching, teaching and investing in startups, and nothing breaks my heart more than meeting a starry-eyed founder who says "we're almost ready to show it to people." The "it" is a physical or web product they've often been locked-down, pounding away at, for many weeks.

In my view, this is the nastiest of all startup sins: failing to involve customers and their feedback from literally the first day of a startup's life, keeping the most vital opinions silent--those of the eventual customers--for far longer than necessary.

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When I hear this comment, as I do far too often, I switch to pleading mode: "Please. Take a week. Get some feedback. Does anybody really care, or are they giving you polite nods and little more. This generally leads to the second biggest reason too many startups suck: they're solving a non-problem.

Does anybody care? 

Many Startup Owner's Manual readers ask why Steve Blank and I are adamant that Customer Discovery happen in two separate, distinct phases: "problem" discovery and, later, "solution" discovery. There's just no other way but, as Steve Blank has said for a decade, to "get out of the building" and talk to the only folks who matter -- your customers.

Building a solution to a problem of moderate or lukewarm interest to users is a long-term death sentence for startups, where founders will almost certainly commit to 20,000 hours of their lives (or five years of 80-hour workweeks) in order to "beat the odds" and deliver a breakout success: a sustainable, scalable, profitable business.

Why, then, are so many founders so reluctant to invest even 500 or 1,000 hours upfront to be sure that, when they're done, the business they're building will face genuine, substantial demand or enthusiasm. Without passionate customers, even the most passionate entrepreneur will flounder at best. Dropbox is a great example. It scaled like lightning by solving an urgent, painful problem for millions of consumers. The product is so good, helpful, and easy to use that it literally almost does its own marketing organically through the product's viral nature, just as Hotmail and Gmail have done since inception.

What's the honest trajectory? 

There can only be one Mark Zuckerberg, and at last look he's young and healthy. Can every startup skyrocket like Facebook or Square or Google? It's downright impossible. The solution: understand your startup's "honest trajectory" and align objectives of the founding team and -- importantly -- its investors to define and agree about what "success" looks like. Thousands of entrepreneurs would be a lot happier if their focus was a solid, growable, defensible niche business that might never go public or be worth $100-million. There's a ton of money to be made "in the middle," a broad swath between struggling or gasping for cash and ringing the bell at the NASDAQ.

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Bob Dorf is an entrepreneur and co-author of The Startup Owner's Manual Strategy Guide with Steve Blank.

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