When you have a great idea for a new business, it feels like nothing can stand in your way. But as we now know, most new business owners might fail. It is a commonly held belief that 90% of startups fail.
Success is measured by, not only profit, but sustainable profit. Even if you could have made millions down the line, if you lose too much early on, and run out, then you’ll be forced to close your doors. Erin Griffith, a columnist for Fortune, defined startup failure as returning less to investors than they invested. By that logic, the failure rate is under than 60%, but those still aren’t great odds.
Whether you’re inventing a new app, making a film, opening a restaurant, going freelance, or starting a nonprofit – only a few come out on top. What do those 10%-40% have that others don’t? And how can you mix the same recipe for success into your own startup?
CREATING A GREAT PRODUCT AND RELEASING IT AT THE RIGHT TIME
First off, make sure you’re creating a product or service that people actually want. Your business may seem like a great idea to you, but that’s not enough. It needs to appeal to many people, at a price that’s worth it to them, and sustainable for your company. This may seem obvious, but 42% of failed startups report a lack of market for their offering.
Bill Gross is the founder of IdeaLab, a California-based “startup studio”. Here’s how he described the importance of timing in his TED Talk:
“But if the startup organization is so great, why do so many fail? That’s what I wanted to find out. I wanted to find out what actually matters most for startup success…
So, I tried to look very carefully at [the idea, the business model, the funding, the timing, and the team] across many companies…
The number one thing was timing. Timing accounted for 42 percent of the difference between success and failure…
So, what I would say, in summary, is execution definitely matters a lot. The idea matters a lot. But timing might matter even more. And the best way to really assess timing is to really look at whether consumers are really ready for what you have to offer them. And to be really, really honest about it, not be in denial about any results that you see, because if you have something you love, you want to push it forward, but you have to be very, very honest about that factor on timing.”
It may feel counterintuitive, in our competitive economy, but it is possible to release a product or service too soon. The public, and your investors, need to fully understand the value. And in order to understand the value, they have to understand the context for how it can be useful. Amazingly, some startups have actually found success by withholding their release until consumers were informed enough, or demanding enough, of their product.
CROSS EVERY “t” AND DOT EVERY “I”
Realistic thinking is crucial, especially for idea-people and creative types. If you’re not the type of person who can stay patient and grounded, then plan on partnering with someone who can. You’re going to need to create a comprehensive business plan with specific milestones, budget each step accordingly, and readjust as you go.
Successful startups factor in the time and attention needed to accumulate adequate capital. Have enough money so you don’t need to constantly cut corners or sacrifice on quality. However, you can’t expect to have everything tied up in a neat little bow before launch. There will always be a few loose ends, but don’t compromise on the core of your product.
Here’s what Tanya Prive, leader of entrepreneurial communities CoFoundersLab and 1000 Angels, told Forbes about budgeting for startups:
“A successful startup is efficient in managing its finances and able to operate very lean. Every angle should have its own budget assigned and unnecessary expenses should be avoided. It is important to know what the company needs in order to accomplish milestones and budget accordingly. When resources are limited, and time is of the essence, companies need to master the skill of doing more with less.”
BE WIDE OPEN TO CHANGES AND CRITICISM
On that note, accept that you’ll always have to adapt and change. Successful entrepreneurs know how to listen to their teammates and customers, and change their product accordingly. It’s easy to get attached to an idea and ignore problems until it’s too late.
This is what Patrick Henry, founder and CEO of business consulting firm Quest Fusion, told Entrepreneur Magazine about listening to others:
“Just because you are willing to learn does not mean that you are willing to seek a mentor and listen to their guidance. By the way, I’m not advocating that you take every piece of advice and guidance from your mentors, but if you have selected strong mentors that have significant domain, technical or business expertise, you should at least consider thoughtfully consider what they have to say. Otherwise, why have them around as a mentor? It gets to humility. It’s one of those things when you think you have it, you don’t.”
As they say: pride comes before the fall. Don’t surround yourself with yes people only. Make sure that your team, and your employees, don’t feel that speaking critically will cost them their jobs. You want everyone to know that you can handle the truth.
This doesn’t mean that you should be pivoting constantly. Constant second guessing will not inspire confidence in your team, investors, or customers. Commit to your product, and believe in it, but be willing to reëxamine your business model at every step.
SURROUND THE STARTUP WITH THE RIGHT PEOPLE
Your team, partners, mentors, and collaborators are going to make or break your startup. Make sure you represent a range of talents and skills, and balance each other well. Make sure everyone is comfortable with multiple hats, but also willing to hire contractors or employees to fill knowledge gaps.
It’s hugely helpful when a startup has a high profile name attached to it. Even someone who has previously had success at entrepreneurship can help to persuade investors and garner attention.
If you can’t partner with such a person, having powerful influencers, or people on your team with a large social network, can make a big difference. Everyone is going to have to become a PR person, so gravitate towards the passionate and enthusiastic.
When asked “What’s the best way to learn more about entrepreneurship?”, 51% of people responded with “start a company.” There’s no way to find out if you’ll be successful if you never take the risk and try. Everything good in life involves some risk. Get as prepared as you can, and then take the plunge.
Most of all, stamina and grit are at the heart of every startup. Only in retrospect do successful startups seem to have been bound for success from the beginning. In reality, everyone has to deal with major hiccups. Deflecting those moments, and pushing forward with energy and creativity, is what gets you into that rare 10%.