What failed startups can teach every founder about building a better business - CEOWORLD magazine
You’ve probably heard the statistic: 90% of startups fail. That’s nine out of ten. It’s the kind of fact people love to throw around to remind us how risky starting your own business can be. And while there is some truth to it, it’s not the full story. This particular statistic comes from the world […]
You’ve probably heard the statistic: 90% of startups fail. That’s nine out of ten. It’s the kind of fact people love to throw around to remind us how risky starting your own business can be. And while there is some truth to it, it’s not the full story. This particular statistic comes from the world of venture capital. A wonderful industry where wealthy people invest even more wealthy people’s money into big, high-risk ideas. They are looking for the next Google or Uber, so naturally, many of them don’t make it. It’s a numbers game. A more reliable statistic is that75% of startups don’t return capital to investors. And for ordinary small businesses, the odds look different again. Of UK businesses started in 2018,40% were still trading five years later. Still risky, yes, but a world away from the doom of 90%. But here’s the thing. We all love quoting the failure rate, yet hardly anyone stops to ask why those businesses failed. That’s a shame, because failure leaves clues, and those clues can save you time, money and pain. Careful whose advice you takeI spent years working with startups before I ever ran one. I managed accelerators, advised founders, mentored them and invested in them. I thought I knew exactly how businesses succeed and fail. Then I started my own, and I realized I’d had no idea what a founder actually goes through, or what it’s really like to be steering that business ship through choppy waters. My first two business attempts failed. The first one, spectacularly. So here’s what my failures, and the failures of businesses far bigger than mine, can teach you about building a better one. And it doesn’t matter whether you’re launching your first business or running one with thousands of employees. The lessons are exactly the same. “It’s definitely not a get-rich-quick scheme”When you find yourself having to defend your business with those words more than once, you know something is probably amiss. Trust me, I’ve been there. It was the heyday of crypto, and people were making millions from it. The crypto space was an equal mix of tech innovators and scammers. 10% of the £4 billion invested in crypto projects was lost to scammers. I got together with two like-minded friends who were also looking for an exit from their day jobs, and we set up D-Central Capital, the world’s first crypto investment fund. Websites were made, events attended and business cards printed. Of course, it was a complete flop as we knew nothing about crypto or venture capital!But it taught me a few very important lessons. You need to be knowledgeable about whatever field you’re going into. You don’t need to be an expert (although it helps!), but creating a crypto venture capital fund with no knowledge of either the venture capital world or crypto is a bit silly. And never make big decisions based on frustration alone. Frustration can be a good motivator, but making decisions based purely on emotion leads to bad choices. I wanted out of my job more than I wanted that business, and it showed. And this one isn’t just for founders. I’ve watched leaders make acquisitions, pivots and restructures fuelled by pure frustration, and it rarely ends well. Ideas don’t fail, execution doesI was having lunch with an entrepreneurial colleague of mine. Between mouthfuls of overpriced and undercooked pasta, he started telling me about his latest side hustle. A brilliant idea that would connect freelancers with short bursts of work. He’d been sketching it out for months. When I asked when he planned to launch, he shrugged. “Oh, I’m not ready yet. I’m still refining the concept. ” Six months later Fiverr launched. It went on to list on the New York Stock Exchange and at its peak was worth over $6 billion. The truth is that the world isn’t short on ideas. What it’s short on is execution. Plenty of “failed” startups never actually failed in the market, because they never made it that far. And execution doesn’t stop at launch either. I built a website and then was shocked I wasn’t inundated with sales leads! Buyers won’t magically find you, and the business graveyard is full of brilliant ideas waiting patiently for customers who never showed up. You’re never too big to failQuirky was a company that seemed destined for greatness. Founded in 2009, it had a revolutionary idea: allow everyday people to submit invention ideas and turn the best ones into real products. It raised $170 million in investment, had 1. 2 million users, and gained media buzz and investor attention everywhere it went. Just six years later, it had filed for bankruptcy. Quirky took on too much too quickly, expanding operations and pumping out new products without enough demand to support the growing costs. Inventory piled up, production costs skyrocketed, and sales couldn’t keep up with the outflow of cash. It was a victim not of bad ideas, but of the simple truth that even the most innovative company can’t survive if cash isn’t flowing and customers aren’t buying. The Oliver Twist EffectManaging cash flow is one of the most stressful and difficult things for any business owner. It’s the thing that keeps you up at night, and I don’t think you ever get a proper night’s sleep until you finally get past breakeven. But no matter how good your finances look, whether you’ve just raised millions in investment or business is flying through the door, you should always operate as if money is tight. By all means spend what the business needs to grow, but never, ever be wasteful with your capital. I call this the Oliver Twist Effect. Hire slow, fire fastHiring is one of the hardest things any business owner and manager has to do, and almost everyone I know has made the same mistakes. The best advice I can give you is: hire slow and fire fast. Only look to hire when you are bursting at the seams, and you cannot physically cope anymore with performing a critical function of the business. Only then do you hire for that role. And take your time. Don’t be in a rush. Make sure you find someone capable of operating in the ambiguous and crazy world of early-stage business, because it is unique. Lastly, you’ll know almost immediately if somebody is not working out. Get rid of them straight away. Not unkind, and not unfair, but fast. It feels brutal, but you’ll be doing you and them a huge favour in the long run. Don’t fail fast, learn fastYou often hear the phrase “fail fast” in the world of business. I support the principle, but many people get it wrong. Failing fast can result in a lot of wasted effort, because the failures are worth nothing if you don’t learn something critical from them. You can’t afford to fail too often. Don’t be scared of failure, but make sure you learn fast, not just fail fast. And when things do go wrong, remember: no sale means something is off, not that you are off. I don’t believe that anything is a failure if you learn from it. It is simply your first, second or even tenth go at getting it right. Every failed startup, including both of mine, left behind lessons for the founders who come next. Every founder I’ve ever met, and every leader who has run a business through the hard years, came away with more grit, more determination and more resilience than they ever picked up anywhere else. They are the bravest and most interesting people I know. So whether you started the business or steer it now, win, lose or start again, remember this: you’re already one of them. Written byJimmy Cockerton. 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