3 fundamental strategies to bulletproof your startup against the ups and downs of the market

March 23, 2011

Recognizing and avoiding the most typical reasons startups fail

I strongly recommend every entrepreneur to read the series of posts on Startup Postmortems on the ChubbyBrain website.

The staff at ChubbyBrain has painstakingly analyzed 32 startup post mortems written by the startup’s founders themselves and pulled out the top 20 reasons why these startups failed. The chart below shows these reasons, in order of prevalence, as analyzed by ChubbyBrain.com’s staff.

startup

Even though most of my experiences with technology companies have been with expansion stage companies who are typically more mature and have lower failure rates than the startups analyzed here, I also see many common threads in this analysis. My colleagues have also written extensively on the different ways a promising, fast growing new company can fail:

Three ways to ruin your business – a must read for CEOs that addresses the people aspect of these failures
The 14 Best ways to burn capital – a tongue in cheek read that addresses failure #5

Clearly there is a growing realization among entrepreneurs and their venture capital advisors that there are some classic patterns of failures in early and growth stage businesses, mostly revolving around the following key areas:
– Team
– Market
– Execution
– Financial Management

History tends to repeat itself, and no doubt we have seen these same issues in both spectacular failures of the hyped up dotcoms in the 2000s, the little known shuttering of many Web 2.0 companies that have cool ideas but no users, or the long decline of lackluster former leaders like Yahoo!.

Now, pattern recognition and prognostic analysis aside, is there another side to the coin? One reader raised an interesting question in the comment section of the post: “What are the top three things these founders could have done to avoid these failures?” Should these always be inherent risks for any startup funding or venture capital investment, or are there best practices that can mitigate these risks?

Here is my take on this: There are three fundamental things which can help significantly alleviate these risks:

Making sure you understand the risks and opportunities in your market: This will help address issues number 1,2,4,6,7,9 and 20
Seeking advice from many sources including market participants, networks, partners and investors: This helps address the market issues above, as well as issues number 12 and 14
Instilling true partnership in a founding team: This is about building a real founding team of executives that really see each other eye to eye and are dedicated to the success of the business. I have written about team building before, and it is even more important at an early stage and at critical, or to use the right word, “pivotal” junctures in a company’s life time. The right, functional team with a solid understanding of the market and a willingness to get advice and feedback from many sources will be able to react well to market conditions over obstacles and build the right product.

Of course, many other factors contribute to the eventual success or failure of a business, and we also recognize that it is very hard to actually execute these best practices to the letter. However, what we hope is that, in the midst of the hectic process of running and growing a business, the entrepreneur has a chance to think about these three things, and mentally set aside some time and effort to address them for the ultimate good of his or her business.

Chief Business Officer at UserTesting

Tien Anh joined UserTesting in 2015 after extensive financial and strategic experiences at OpenView, where he was an investor and advisor to a global portfolio of fast-growing enterprise SaaS companies. Until 2021, he led the Finance, IT, and Business Intelligence team as CFO of UserTesting. He currently leads initiatives for long term growth investments as Chief Business Officer at UserTesting.