Why too many awesome, amazing, next BIG things fail to take off.
It’s that time of year again, so it’s time to reflect on the year that just flashed by. And what a year it was. We had Brexit, we have Trump, and we have some serious global uncertainty. Add in the usual suspects of rapid change, disruption everywhere, artificial intelligence, rising inequality, the rise and rise of IOT, the energy and climate change challenge and we’re on a roll. Chaos reigns. Wow, things were much simpler growing up in the seventies. A pair of shorts, some sunshine, coconut tanning oil and nothing much to worry about. Fleetwood Mac, the Eagles and Queen songs blared out on my ‘am’ radio, which was strapped proudly to the back of my bright red Malvern Star dragster bicycle. That seems like an age ago now.
In the 30 plus years since I left my cossetted life as a high school student in one of Western Australia’s better grammar schools quite a bit has happened. During nearly all of that time I have been an active entrepreneur in Australia and New Zealand. I’ve worked with some incredible people and I’ve been involved in some amazing ventures. Some have done hugely well…and some haven’t. It pains me to say that more ventures go the way of the dinosaur than the way of Apple Computers.
And the reflection of course, is why? Why do so many ideas struggle to make it? Statistics tell us that 8 out of 10 entrepreneurial start-ups crash and burn in the first 18 months. That’s an 80% failure rate. That’s a very clear and present message and it’s enough to scare the pants off most investors. Those with capital have plenty of great investment options and most are not philanthropic about investing in start-ups. Banks and other financial sources share their skepticism. The lack of success is clearly a key issue for financiers. Providing funding at the pointy end of any new idea or venture isn’t for the feint hearted. The appalling track record of new ventures cements the need to be conservative with capital. That said, we need companies to start and we need companies to grow. This country needs ambitious entrepreneurs to become really successful. Their success is where New Zealand’s future wealth will come from. It’s where great careers will come from, and it’s where the country’s aspirational future standard of living will be secured.
And it’s our aspirational entrepreneurs in sheds and skunkworks that do most of the heavy lifting, driving the innovation that will get us there. They’re the ones pushing the envelope and disrupting the status quo and that’s a critical element of healthy entrepreneurial ecosystems. This is where the next generation of growth ideas and great companies are born. They must be, and deserve to be, supported. But they must also prove they can commercialize their awesome, amazing next big thing. And that’s where we have a black hole in the start-up universe. Why is the failure rate so high? Highlighted below are five areas we think every entrepreneur should focus on and have well sorted. Investors will deep dive into this stuff and entrepreneurs will need to have the answers ready because these elements are critical to making “go/no go” decisions. If an entrepreneur wants capital investment they need to ensure their venture is investment grade.
Sure, cash runs out in the end for most that don’t make it. That’s certainly the most quoted reason for failure. However, running out of cash in many ways is simply a dashboard indicator showing evidence of poor strategy, marketing and management. It’s a belated look in the mirror at some of the critical detail an entrepreneur missed. These omissions are often very significant, and often fatal. What we want to know is what actions can entrepreneurs take to reduce the 8 out of 10 failure rate?
This is by no means an exhaustive or extensive list, but it is an exhausting and extensive problem, particularly to those who have failed.
Thought 1. Talk & Test
Get into the market early and talk and test your ideas with real customers. Being market driven isn’t a solo pursuit, and it’s not some crazy concept. Don’t hide in a cave. What do they need? Why? How does your idea solve their problem? Is it a big enough problem to be worth your while solving? Can you develop the right product at the right price? Can you access the channels you need to reach the customer? Invest in immersion to develop insight. Market research, it’s a wonderful thing. That said, keep it real and keep it focused…but don’t take shortcuts. Too many new ventures fail to invest in market research and not doing so nearly always comes back to bite.
Thought 2. Value Proposition – You need one
If you don’t know why your customer should buy your thing, neither will they. Please, please, develop an awesome Value Proposition. This is what your customers and your venture’s future depends on. Osterwalder’s book Value Proposition Design is a great place to start. He famously states,
“Don’t risk wasting your time, energy and money working on products and services nobody wants.”
Makes sense to me, good advice.
Thought 3. Design & Narrative are key
When you’ve worked out what your Value Proposition is, communicate it flawlessly. Invest in great design and narrative. There are too many ugly websites out there. Horrible design and poorly written narrative will help to stop your concept dead in its tracks. Remember, you get what you pay for and your brand image needs to be brand safe. It isn’t something you should cut costs on. The IOT environment is here to stay and websites and social media form decision reference points for customers. Telling your story exceptionally well visually and in narrative is incredibly important. Honing these two critical communication elements will go a long way to helping your venture engage with new customers and keep existing ones.
Thought 4. People, people, people…
If you’ve got the wrong people doing the wrong things…look out. You might be the founding genius of the next Apple Computer company, but that doesn’t mean you know it all, and it certainly doesn’t mean you can do it all. For example, many founders lack selling expertise, which often leads to failure securing critical orders in the start-up and scaling phases. This puts pressure on, or limits cashflow. Remember sales solves nearly everything, especially in the beginning. Get expertise into your business early on, especially selling expertise, which many misguidedly think they have, when they don’t. Getting the right people in the right place will make your venture more resilient and you’ll get where you’re going faster.
Do some serious thinking and develop a business model that shows real respect for your idea and those involved in it with you. Fuel it with a strategy and make sure you can implement and deliver it. In the beginning cash is a scarce commodity. Don’t waste it by faffing about with poorly developed business models. Move fast and jump across the innovation chasm. Move quickly past early adopters and into the early majority where healthy cashflow waits.
Do these things well and you’re in with a fighting chance. Ignore them and you’ll be in a race to the banker’s naughty room where you’ll join the other 80% who failed to nail their idea to the right people and plan.
By Jim Wilkes