Ways to avoid being the one of the 80-90% of start-ups that fail ?? Please ???

In My Humble Opinion
1

I have a dozen ideas in “seed” or “infant” stage (pre-start-up projects/companies), and I’ll be focusing on trying to make one particular one I’ve chosen, into more of a reality over the next few years.
I watch this video over and over and over:
50 Entrepreneurs share priceless advice
This one is very interesting, too:
The single biggest reason why startups succeed | Bill Gross
I’ll spoil it for you [don’t read!]: The 5 factors in order of importance are:

  1. Timing
  2. Team/Execution (this means you shoot to death team members who aren’t fitting in)
  3. the founding idea
  4. business model
  5. funding

You guys are really wise. Any general entrepreneurial tips of your own on how to survive the infamously high death-rate of the start-up phase?

2

[Moderating]

One thing that successful entrepreneurs know is where the right market for their ideas is. For instance, the right market for this thread is in the IMHO forum, not CS.

3
  1. Start with a really good idea.
  2. Get some money to set up the company
  3. ???
  4. Profit!!
    Seriously though, I would disagree with the priority of the factors, or whether they are the top 5 at all. While I haven’t started my own company, I have worked for a couple start ups and new organizations within larger companies. Here is what I would prioritize:
  1. the founding idea - This can change over time, but unless you can articulate WHY you should be in business, the rest kind of doesn’t matter.
  2. Team/Execution (this means you shoot to death team members who aren’t fitting in) - Not just “fitting in”, but you need the right people with the right skills.
  3. funding - Most startups fail because they run out of money. Sure, it’s less important to Bill Gross because he’s already a billionaire. The only reason it isn’t #1 is that without a good idea and a good team, you are just throwing money at a bunch of idiots.
  4. business model - Need to figure out how you will make new money
  5. Timing - Certainly you want to judge the appropriate time to start an opportunity and be able to take advantage of it.
4

  1. the founding idea - Do a market analysis, would anyone bother to buy your product or service? … what’s your “hook” to get people to buy? … just opening up yet another doughnut shoppe ain’t success of-made typically …

  2. Team/Execution - This starts with YOU, small business person, do YOU have all the skills to run a business? … one of the causes of business failure is people go into business thinking all they have to do is fry doughnuts and decorate them all day and they’ll get rich in no time … April 12th is a bad time to find out you’ll be paying 15% self-employment tax on top of your income tax … OUCH …

  3. funding - Start-up costs just get your door open … it will take awhile to get the customers rolling in … depending on many factors, you’ll be operating at a loss for some time, so you’ll need a big pile-o-cash just to pay bills until you break even … and this pile needs to be separate from your personal pile-o-cash, don’t ever co-mingle funds …

  4. business model - Have a clear plan, where do you want to be in 5 years, 10 years, 20 years … it doesn’t have to be very detailed but it should set some general guidelines … when I was running my business “Bankrupt Bookkeeping”, the plan was to focus on these informal businesses running hand-to-mouth and show them why they were insolvent … for a fee … didn’t make tons of money but it was a profitable operation … the problem was no return customers … [giggle] …

  5. Timing - NOW … interest rates can only go up … the business cycle is currently in an upswing … get in and established so you can weather the next big downturn …

Good luck with your business venture … be ready to work 18 hours a day 7 days a week and eating Top Ramen …

ETA: Check with the SBA … tons and tons of FREE information there … that really should be your first stop before you read any bozo books on the matter …

5

I started a small business 3 years ago that has been profitable every year. In my case I found an area where demand exceeded supply and the barriers to entry were high. It took a fair amount of capital to get the business started, but the timing happened to be right. A combination of finding the opportunity, filling the need and executing well. One thing that worked for me was that I started small and slowly built up. If my calculations were off I had a way to recoup most of my investment and walk away.

6

I’ve been a founder for a number of startups, most of which DID fail, so maybe I can give you some advice from the other end.

The biggest causes of failure I’ve run into in my own and within my circle of friends are:

  1. Undercapitalization - reiterating the importance called out by msmith537 and watchwolf49, adequate funding is probably the most crucial part of having enough time to succeed with your venture. Your startup / new business is going to bleed money for some amount of time - whether it’s 6 months or 3 years, it’s going to be longer than you’d like, and likely longer than you plan for.

Having enough funding, particularly funding distinct from your own personal retirement and ongoing expense money, is absolutely key to success. And here “enough” means “more than you’ve calculated you need by at least 20%+.”

  1. A specific market / desire for your particular product - it’s really easy to look at high level numbers and do some quick aspirational math along the lines of “apparel is a $315 billion annual business in the US…all I have to do is capture .001% of that with my clever t-shirt company and I’ll be a millionaire!”

Whenever possible, get opinions from the non-family-and-friends group of people early and often. Do market studies. Build prototypes and put ads up for sale purely to gauge interest at different price points. Do whatever you can to get an accurate and unbiased read on the real market desire for your particular product. Then take that information into account when calculating your market and how much money and time you need to reach success. Be conservative and pessimistic and see if the picture still works - if it doesn’t, you’re probably aiming for being among the 90% rather than the 10%.

  1. Know who your competitors are - it’s relatively easy to identify gaps in the market for your great idea. It’s harder to execute and get a real product or service out there that actually addresses that gap, often taking years of blood, tears, and toil from you and many others on your team.

Then the hardest thing of all is when giant competitors you weren’t expecting come in and create something directly competitive with what you’ve created after you’re finally getting some traction and can see light at the end of the tunnel. They have economies of scale and advantages in distribution and supply chains you can’t hope to match, and can undercut you for longer than you can stay solvent.

Pretty much the only way to avoid this is to become (or have a founding partner who is) an expert in the particular niche you’re targeting. Know your space inside and out, know whatever products or services are out there that address even a part of what you’re going to bring, and know who the biggest players who COULD do something in that space are. Know how you stack up, and most of all, before you do anything, articulate what your secret sauce is and why you could succeed against Conglomco if they decide to enter. Answers like “we have 3 patents around our solution” are good, answers like “we have a great culture and we’re going to work harder and disrupt!” aren’t.

  1. In the immortal words of CM Burns: “I’ll keep it short and sweet. Family, religion, friendship. These are the three demons you must slay if you wish to succeed in business. When opportunity knocks, you don’t want to be driving to a maternity hospital or sitting in some phony-baloney church. Or synagogue.”

Ok, that’s an exaggeration, but there’s actually an important kernel to extract here: you need 100% dedication and buy-in from your family and friends, and you have to be in a very stable place in life to attempt a startup. This is because it’s going to take 80% - 110% of your time and attention for several years. Your relationships are going to suffer, whether family or friends, and you need buy-in from them or they’re just going to make an already difficult task even harder and more stressful and less likely to succeed.

The stress of a startup can be significant, and if you’re not in a stable place in life and have to move or deal with kid problems or family drama, or are worrying about your day job, it’s just going to add to it and make it less likely to succeed. Be aware of this. Plan for this. Get buy-in from all the other people in your life that they’ll support you and be aware of how much time and attention it will take.

7

Write a thorough business plan and review it monthly. The SBA has some great resources - use their website and get to know your local representatives.

Join local civic groups. The Rotary, the Chamber of Commerce, the Elks, all of these groups can provide much-needed contacts and resources. Get to know other business owners in your area. Figure out who has been most successful and ask them for recommendations on accountants and other resources.

Don’t try to build your whole organization on day one. You can outsource things like payroll and Contracts in the beginning. Don’t overload your organization with overhead and employees before they are needed full-time. Likewise, don’t take an “Out of sight, out of mind” attitude toward these outsourced functions. Make sure you understand exactly how they are being run so that you can transfer seamlessly when the time is right.

Identify high profit vs bread-and-butter deals. You need the stability of some long term lower profit business. In order to grow, you will also need some higher-profit short term deals. Don’t confuse the two, and never neglect a long-term earner/client for a short-term gain.

Take responsibility for maintaining high morale throughout your organization. Managers whose people are working hard, and making profit, and miserable are not good managers. Those miserable people will move on to other companies, and then you’ll get no business from/with the companies they move to. Never let unpleasant people overwhelm your operation as managers, employees OR as clients.

Know who the real decision-makers are. The ones who have a warrant to spend money for your clients/corporations are almost never the ones who initially contact you. Don’t spend all your time and energy communicating with a Program Manager while neglecting a call from the Contracts Manager.

Don’t do business on a handshake. Never start working on a project until you have a signed contract with the customer.

8

Don’t whine about politics or the government on any social media platform. Your business isn’t struggling because of tax rates, the minimum wage, bag taxes, or the affordable care act. A guy I know opened his own store and I swear he spends more time on his business’ facebook page whining about the ACA even though his business is too small for it to apply.I didn’t even use the discount card he sent me for my birthday.

A local pizza place near me spent more time bashing the minimum wage increase than talking about their pizza. They’re now out of business.

9

Not all that 80-90% “fail”. Sometimes people just work a job for a while, then move on to something else. Small business can be like that to: you work, make a living, decide it isn’t for you.

Even if you go backwards, it’s not necessarily a “fail”. You start with $90K, work hard, make a living, and end the year with $80K. Ok, you made less than enough to pay the wage you took, and you decite it isn’t for you, but it’s a life experience that cost $10K.

My dad owned/ran a small business for a while. He never went back to it, but it was interesting to see that he carried the small-business skills with him for the rest of his life.

10

Paul Graham is a VC, and he’s written a number of essays on startups. Actually on lots of subjects, but if you root around in his library, you can find the ones about startups.

http://www.paulgraham.com/articles.html

You might also find his startup school to be of interest:

11

It might help if you could give us the type of startup you’re interested in. Is it software, service, retail business, business-to-business, product idea, …? You don’t have to get detailed on what it actually is, but what business category will it fit into?

12

I interpreted the OPs question differently. Assuming you have done everything correctly by the book, many still fail. What are the usual pitfalls that can be avoided?

To me, one of the big ones, is “You are just not cut out to be a businessman!”. Which would be me. I know better than to even try. The great American myth is that, no matter who you are, you can run your own business just by following the dots.

13

Know what you’re doing. I started my business three years ago and am just now able to make a living with it, but my S.O. has a high income so I’ve had the luxury of learning as I go, and next year she can retire and I’ll support us, unless I screw it all the crap up…

14

Have you taken business and accounting classes? “Dummies books” don’t count. Many start-ups collapse because the owner didn’t know how to do the books or the payroll, and didn’t know if he was making money.

I know a food truck operator who, after 3 years, still couldn’t tell you how much it cost him to make each pulled pork sandwich, and how much profit each one made. He can tell you a sales total for the day, but not if it made a profit. That’s cost accounting, and he never learned it. The only reason he’s still in business is that he has generous/foolish backers.

If you are looking at starting a business in a spot where a half dozen businesses have already failed, look elsewhere. It’s a bad location.

15

I would add into this that when you start your own business or buy one and run it, (lets say a gas station) your basically buying yourself a job.

16

As a avid watcher of The Profit I am an expert in starting businesses. First you need to know your numbers. You need to know what everything costs and what everything sells for, how long everything takes and what the bottlenecks are. The other thing you do is to listen. Listen to your customers because they know what they want better than you do. Sell what they want to buy and not want you want to sell. Also listen to your employees. They are on the front line and know where the weak points are.

17

Three friends of mine started a craft brewery 13 months ago. They all agreed to not take a paycheck for the first year, so they all had at least part time jobs in addition to the brewery. At their one-year anniversary celebration they announced that they are doing great, at least in part due to rolling their first year profits into the business.

18

I feel like this is something that isn’t emphaized enough. Possibly because of the Silicon Valley instant billionaire mythology, I think too many people don’t want to do the numbers. They think all it takes is a “cool idea” to generate marketshare.

Similarly, a lot of MBA types want to just focus on “strategy”. Not sales or the operational aspect of a business. A business only needs so many high-level Powerpoint decks. At some point, you need people who know how stuff works building and installing software, hiring and managing competent people, building product, whatever. Even if you outsource a lot of it, you still need people to deal with the vendors and troubleshoot shit constantly.

That’s actually not a great idea. You want to make sure you pay yourself first. Tough to run a business if you can’t make rent or buy food. While many people do start side businesses in addition to their full-time job, it’s usually better if you can focus 110% of your attention on the business.

19

/off topic / GB Shaw wrote a postscript to his play “Pygmalion” (My Fair Lady), in which he adds: No, she did not marry Professor Henry Higgins – she wasn’t that stupid: She married the dopey young man and they started a flower shop. It was pretty tough the first couple of years, but then they went to night school, which they didn’t like, and “the business was in some mysterious way beginning to take care of itself.”
./back to topic/

20

Thanks so much gang! So much great info and advice as always. This is the type of help/thread I keep coming back to and reading over and over to assimilate the information into the specifics of my project(s). I don’t like to get too into detail here because I think it’s more useful to other readers to see generic information that applies to anyone (as opposed to a glow-in-the-dark, kiwi-shaped waffle-iron!).

Your advice is never wasted on me, and I’m sure tons of passing readers who don’t actually post here feel similarly. So on behalf of them, thanks!!!