Why Too Many Startups Stink

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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.

Find the right trajectory for your business and focus not only on reaching it, but on assuring that the result is a sustainable, repeatable profit engine that can perform and grow healthily over time. Use Customer Development to identify and refine the potential profitable niche and stay in close contact with customers as you build, to be sure you're building something they'll want to have...and keep.

Stand Out in the Crowd

If you're solving an important problem, make sure your solution stands out in the crowd. Hundreds of entrepreneurs I've met never spent an entire day Googling their industry, other ways to solve "their" problem, and few have spent time "playing consumer," trying to find "their" own product, or one like it, and creating a "market map" that assesses all the competitive solutions, their strengths/weaknesses, and where the new product fits clearly and distinctly in its competitive environment. If you can't figure this out on your own, and relate it to customers succinctly, it's a certainty that your customers never will.

Going Forward is NOT About Standing Still

Another of my high-frequency "sad" moments happens when visiting with a team that is consistently "flatlining," or delivering minimal or trivial user growth week after week or worse. Clearly, something's horribly wrong, and everyone just keeps showing up, doing their jobs without attacking the core problem that's almost always a lack of palpable customer enthusiasm. What's the point? What are they waiting for? It's time to bring the leadership team into a room, dissect each key element of the business model, and identify pivots that are worth exploring smartly--where else--with customers.

Going Forward Is Often About Going Backward First

Entrepreneurs pride themselves in their problem-solving abilities, tenacity, and willingness to run through brick walls to make things "go." More often than not, the DNA strand that makes entrepreneurs great is the one that's their undoing when confronted with "flatlining" user adoption, growth, referrals, or frequency. These entrepreneurs need to switch smartly out of "do" mode and return to the earliest "discovery" steps to find a distinctive, exciting solution to a seriously painful customer need or problem. It's the only way to make a startup not suck.

This article initially appeared at SteveBlank.com

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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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