Tom Peruzzi's thoughts on digital, innovation, IT and operations

Startup Failures – my best of

Posted in startup failures by opstakes on November 24, 2016

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(Picture thanks to pixabay)

Tons of wise people have written about it already and lists and books can be found online and offline about that topic. I had to prepare for a speech about failures and how to mitigate them. This is how I started that list and it got longer and longer the more I thought about my founder’s journey and the companies I was allowed to follow and advice quite closely. This is mostly “my” list, even if you may find some failures which sound familiar to you. And yes, it is just another list, but anyhow I hope it may help the one or the other … It is an unordered and unpriorized list, any failure alone can risk your business and I havnt’t found “the failure” expect running out of money and not filing for bankrupty.

Trust – No Trust

You have to trust to grow but how to manage it properly? Why KPIs are somehow good to know whether you are on the right track, but don’t over-optimize and micromanage. Just trust is dangerous and risky, depends on how good/long you know the person and even if it is your best friend: create a procedure to divorce in the beginning.

My learning from KPIs: make sure you have some as a parachute, don’t overemphasize in the beginning but formulate measurements which help you verifying that your company is on the right track on different levels. Don’t evaluate 100 numbers a week, have a look at a few once which indicate success and proper commitment of your team.

Almost Done

Only deliver then you are done. Whenever we were under pressure delivering and accepted an almost done we were punished later. Not financially but with way more resource allocation and more, hence delaying other projects. The spiral of death of almost done is hard to attack at a certain point. The term technical debt is wellknown, Ben Horowitz came up with the idea of business dept too. Everything we don’t do right now creates some kind of dept. Accepting the fact is sometimes ok, even necessary but be sure that it will have to be solved at a later time.

The right timing

It is not only about the right team with the right product, studies know it is timing mostly. (see https://www.entrepreneur.com/article/248536 or this post on forbes.com)We started our subsidy in Switzerland 1 day before UBS declared ist financial loss at the beginning of the 2008 financial crisis. That definitely was the wrong timing, even if we did anything one would advice upfront: We hired a local talent, well established, we secured cash-flow for the go-to-market, we had tons of meetings upfront and started with a nice party and a lot of warm welcome). Honestly, we shut down after a year. An end full of horror is better than endless horror 🙂

Niche versus I love them all

Too broad is a big problem. You think you have to to get clients but a) your clients don’t find you as you are too broad and b) you cannot tackle all markets at the same time. You can grow any time later, but start in a niche, get some market share and acceptance and then grow. Have a look at Peter Thiel’s book “From zero to one” and his support of the idea of starting in a niche, naming Tesla as a perfect example. At the beginning you often fear loosing customers by not offering them a package dedicated to the exact need. In one of my advisory jobs I often got confronted with discussions like “Are we SaaS or an integrator?” or “Isn’t the customer wish more important than the roadmap?”. The authors of basecamp once asked  if you do exactly the thing your customer wants and the customer is leaving, how does your product then look like? A niche allows you to prove with ok costs and to learn how to best phrase what exactly you are doing. Take the chance.

The right bonus model

Think about what currently drives you most and how to incentivice your employees. If you want to grow, build a growth model, if you want to innovate, foster innovation. Don’t try to incentivice too many initiatives at once and create a system that does not hinder innovation. Think about what Daniel Pink showed us about reward models, especially for knowledge workers or go through Sutton’s and Pfeffer’s book about management myths about that topic first. Choose your model wisely, the model will mainly influence the direction and strategy of the company.

Know your customers (segments)

That tackles the niche problem too. You should not only focus on your market, focus on your customers too. How can you solve a problem if you don’t know your customer segments pains, gains and needs? A Value Proposition Canvas as an example, talking to the customers makes real sense. Lean StartUp is not only a book, there is a lot of truth in. Only if you know them, you can help them. We thought we can tackle another segment but it didn’t work. Why? We simply missed some insights about the mechanics of that segment.

Living on the cash flow versus living on investors

It’s your decision. We wanted to grow by cash-flow only and we succeeded. Maybe it was slower but it was successful. Others I see live on the cost of the investors, the money you get you have to manage carefully. Don’t save the money, money on your account is somehow lost money, it must “work”. And please avoid status symbols, all money should be dedicated to your most important tasks, to create and foster business value and gain a relevant market share.

Public funding is not your prime customer

When you start your company you often intend to get some extra money via public funding programmes, especially in Mid-Europe. It’s often seen as some funding tourism: young startups going from one governmental agency to the other and the focus is raising the money, not getting customer traction. Make use of governmental programmes but take them as they are: programmes to support you, not to feed you and keep you alive.

The wrong board-partner may kill you

I once partnered with my later successor. He was a well-known founder, very senior. We were then 3 in the board and we made decisions fast. Everything seemed to be fine. My 2nd founding partner left and I had to figure out, that decision making wasn’t his prime focus, it was ours and he participated. We stuck in decisions, became slow. Employees recognized the change in speed, left. Finally I left too, agreed on some money and an earn-out. He thought it was me and he knows it better and within 2 years we lost all customers and a multi-million Euro yearly revenue and the company got bankrupt.

Culture is fragile and volatile – take care on hiring

Everyone you hire is part of your team and affects your culture. If one doesn’t fully fit, then it’s not the team to change, it is him/her. You as founders mainly influence and build culture first, be aware of your job as a role model. In times of growth and emergent need you may not think about that (like I did). Post mortem it was always a failure if I and the team weren’t 100% OK with the hiring decision.

Culture is fragile, especially at the beginning, take care on it, manage it properly and align your passion, culture and strategy.

Right time to hire

When do you hire? We tried to hire on demand first, knowing it will take 3-6 months to get the right person, we built prediction models and it didn’t work out. Finally we thought about the book “From good to Great” and the “First who then what” and starting hiring any talent we find and when find the right position internally and from one day to the other we succeeded. I would strongly recommend to always have hiring running and if there is a real talent, get it in board and work out, how the talent may best help.

Documentation and processes

You need as less and as much as possible and feasible. Whenever something becomes repeating, automate (hence build a process/routine). Take care, when you grow. Processes may be used to delegate work which shouldn’t be delegated 😉

Exploit your scare resources

Your scare resources are your most important resources, do anything to protect and exploit them, this is there you may need work procedures and processes. Think about how you can best exploit via sharing, don’t create pools of wisdom.

Time is not the right measurement of work

It’s all about commitment and delivery. Relearn and adjust properly. Simply said, but execution is crucial. Built it now several times, still sometimes falling into old habits. If the guy delivers what he promised and agreed on then don’t take care on what-else he/she is doing.

Summary

Any failure is a chance to become better. First make sure to survive, than save the findings and (re)act accordingly. Rethink Peter Sutton saying “Reward success, celebrate failure, punish inaction”. Very wise words, keep them in mind, have fun, rock it, crush it and love your family.

 

 

 

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