Why Most Startups Fail And What’s The Best Plan To Succeed

The hard truth of startups and new products is that at least 72% of all new products fail, causing damage to individuals’ savings, company’s cash flows and P&L, and affecting the morale of the team involved.

The Silicon Valley Venture Capital Greylock Partners and the Venture Capital Database CB Insights analysed startups post-mortem earlier in 2017 and confirmed that user and customer demand is a North Star for the success of a new business idea or a new product.

According to 100firsthits.com, the number one startup mistake is “Building something nobody wants“. In fact this all looks like commons sense. If there is no market need, whatever awesome product we manage to put together and promote, we won’t sell.

So the question is: how do we find out whether there is customer demand for a business idea, and how does the product need to be to satisfy that demand BEFORE investing big money?

Eric Ries, author of “The Lean Startup” wrote something interesting about this: “startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.”

So there is a recipe for success. Entrepreneurship has a magic power, it triggers positive energies and it leaves people with an irresistible willingness to start doing things. However, all these positive energies can very easily become negative when they are not channelled in the correct direction. And by negative we mean: having quit a day job, having spent most of our savings, having re-mortgaged the house and ultimately having trouble explaining to our life partner, family and friends why we have done all of that and we still haven’t been able to succeed. That’s awful.

Luckily there is a process that we can follow, developed after having worked with hundreds of entrepreneurs.

Instead of starting to develop a product and hiring people immediately, these are the questions that we need to answer in order to build and launch a product that customers need and for which there is market demand:

• Which problem are we going to solve?
• Who has the problem in our market?
• Who are the early adopters?
• What is the value proposition able to satisfy their needs?
• How much are they willing to pay for it?
• What is the minimum set of features required for launch?

The way to answer most of these questions is to engage with customers from the very early stage of a new business idea, get to know them profoundly, create a value proposition based on the insights captured that relies on the company’s key strengths to create a competitive advantage customers care about, and test and iterate that proposition on the market until we reach product-market fit.

Most of this can be done before investing any substantial resource into the business, and that’s really the best thing about Lean Startup methodology. The most difficult thing is to resist from the instinct to jump into “build mode”. Instead, we invest some time to de-risk an idea before investing heavily in it. Everyone is in love with their idea, and the last thing we want to know is that it’s not a good one. But the sooner we realise an idea is flawed – i.e. there is no market need for it – the better it is.

In terms of practical steps, this is the usual process we apply to validate a new business idea and achieve product-market fit:

• compile a lean canvas to have clarity of a business idea (see here a few tips on how to compile a lean canvas).
• identify the riskiest assumptions for the business idea. Hint: usually these are the ones around target segment, problems and market size.
• conduct a round of qualitative interviews with target customers, to understand if they have the problem, how big it is, and what they currently do to solve it (here are a few tips on how to recruit customers, how to conduct Customer Discovery interviews and which questions to ask them).
• run a collaborative workshop with the entire team to refine the value proposition based on customer insights collected so far. This is how disruptive ideas are generated!
• prepare a cheap and quick form of a prototype (we’ve made a list of thirteen options, ordered with the least expensive at the top).
• conduct another round of qualitative interviews with target customers, to understand if the solution prepared solves the problem and if they are willing to pay for it. At this stage it is mandatory to attempt to get a commitment from them.
• iterate the solution, and conduct new interviews if they didn’t commit already.
• when we get enough commitment, we define a MVP (Minimum Viable Product) and start proper development.