Why most startups fail… and here is how not to

By Brett Commaille

Every couple of days we hear about a new start-up jumping onto the public stage with much fanfare. After that they’re a bit like a pimple in the middle of your forehead — every time you open your eyes it’s all you see.
But then one day, for no specific reason… it’s gone.
“Anyone know what happened to whatchamacallit?” After some enquiry, we’ve got a handful of rumours with a bucket of spin. All we know is: “it’s over”. Truth is, most of the time, it’s one or more of the same basic reasons.
There will always be those special individuals who find exceptional ways to kill their business — like setting fire to mom and dad’s garage and destroying the code (and backups). But the majority of startups fail in far more mundane ways. Being in the venture capital game for a number of years, I’ve seen it all. Here’s a number of key reasons I’ve seen startups fail… and here are some ways to avoid them:
1. Not understanding the user: Your plans are based on what you think the user wants, and maybe you even have a few buddies who thought that was cool. Make sure you take the time to find out exactly what the user wants and how they like doing things. Be careful about telling them how they should act, this usually backfires.
2. To in love with the tech: You love adding features — “Wouldn’t it be awesome if we could also let them Skype with the dead?”. You’re building an elephant, but haven’t tested any of it. Maybe users only need the trunk. Keep it to the core and market-test before you go wild on features. Getting this wrong has massive knock-on effects.
3. Launching to slow: If you’re building that elephant, you’ll keep holding back on the launch until everything is perfect. So it’s never fully ready or tested and now the competition has hit the market with a good basic solution. So keep it lean, get to market fast and add functions as user demand warrants it.
4. No real sales strategy: Capturing 20% of the market is not a strategy! Who will the first customers be? How do you reach them? What does it require to close the deal? How many sales people do you need to do this? What will the sales number look like based on all of this. Brush past this and you will have drastically overestimated your revenue.
5. Market too small: It’s easy to pick a niche that doesn’t seem too challenging. Remember you may face competition, even in that niche, and end up with a potential market which is just too small to support a sustainable business. Make sure your market is big enough and growing.
6. Basic copycat: Enter the many thousand Groupon clones around the world. Working international concepts have been launched successfully locally, but only if you’re the first to do it locally. Doing this into a busy market because you see the current players making tons of money is a sure recipe to burn cash and stay small. I learnt this far too well, having launched a super cool sunglasses brand … one of hundreds in the market (just before a recession too – damn!). We sold some of course, but the big boys in the market sold millions. Might as well have sold Chappies on the Metro. Be different, not “the same but better!”
7. Fast burner: You ramp up your costs as you grow a big developer team to match those massive revenues you expect. The revenues don’t happen and you’re suddenly burning money faster than a new MP planning Gala dinners. Again, get into the market with the basic product and start generating revenue. When the conversion metrics show you’re getting it right, then you can grow the spend.
There are more reasons why startup businesses fail, but these are the most important. Bear them in mind and you may avoid some of the most common pitfalls. Of course, the easiest way not to fail, is to not start. Fortunately you’re not scared, (else you would have closed your browser after seeing the word “start-up”) — and now you’re just a little a little more likely to make it.
Good luck!

Dave Sifry’s success secrets

By Mandy de Waal


When it comes to Silicon Valley start-ups, Dave Sifry has been there, done that, and gotten quite a few T-shirts. He founded Technorati as a little science project in his basement, is the creator of Offbeat Guides, and was the brains behind Linuxcare.


A software entrepreneur who has spent over twenty years starting up Open Source and Web businesses, Sifry has built, managed, got funding and enjoyed huge success. He’s also experienced the lessons failure can bring. He spoke to Memeburn.com from San Francisco.

What’s the secret to raising VC funding?

Step 1: Build something fantastically great.

Step 2: Know how to explain it really easily. Practice. Practice. Practice.

Step 3: Build a great team, or have a great team ready to go.

Step 4: Get introduced to investors through trusted intermediaries if possible. If you don’t know any investors, try to get someone who does, get them excited and then let them introduce you.

How do you speak to potential investors?

This is counter-intuitive. When you are talking to a VC, if you are looking for money ask for advice, and if you are looking for advice ask for money. VCs are risk players. You are going for the big win, but you need to present a pretty clear understanding that the money part of it is secondary to the goal, and that you are teachable and are ready to listen to what the market has to say. I don’t think I have seen a successful business that hasn’t pivoted in the products they build, or the customers they have.

What do you ascribe success to? Luck? Competence? Skill?

Yes to all three. I think you have to start out by having a reasonable head on your shoulders. I’m living proof that you don’t have to be the smartest person in the world to be successful. But you do have to have an enormous amount of dedication and gumption. I love the word gumption, because it’s the get up and go that you need every day even when you don’t want to get up.

Success is the ability as well to successfully hold two contradictory ideas without going crazy. This first is that you are going to build something great that people will really love. The second is that you hold the idea your product is terrible, it never works the way it should, and that you have to listen to your customers and users how to fix it. This can drive an ordinary person crazy very quickly.

Then you need a humungous dollop of luck. This helps you get that big deal when you don’t have enough money to make payroll. If you have the gumption to face good and bad, and have a good head on your shoulders, you’ll be prepared when luck arrives.

Lastly, make integrity your golden rule. The core of this is to do what you say and say what you do.

Have you ever failed and what did you learn?

I fail at far more things than I succeed at. I have a litany of mistakes where I have banged my head against things. Mostly these are my own stupid mistakes. However I see failure as nature’s way of teaching you that you must move in a different direction.

What’s your advice to South African start-ups?

Ask your friends, colleagues and family for their advice before you start. This will help you to explain effectively what you do. If they tell you not to go for it, still go for it. Don’t let them hold you back. Take the risk. But listen to what they say, because they could give you valuable feedback on how you can improve things.

If you’re building an online business there are so many free tools and ways to effectively measure what you are going to do. If you don’t build effective measurements into your business you are really holding yourself back. From Google analytics to customer analytics that can continually test and iterate your ideas, there are a host of free or reasonably priced applications that could radically improve your business.

Start with yourself as the product manager and product user – it will give you a clear north star as to what you want to build the business around if you are the customer. If you are not building it with you as a customer make sure you know that business really, really well.

From the outside looking in, you may think the business or industry looks easy, but you may not know enough about the business, ecosystem or economics to build a successful business out of it. If you build a product and you are the customer, at least you’ve built something you really like and can use in the event that it is not successful.