The most successful firms of today are not the same as those of yesterday. The company, with its high expense and inflexible hierarchies, appears to be becoming increasingly obsolete. The most successful companies have shifted from being led by a university graduate who has worked her way up the corporate ladder for a decade or two to being founded by a Harvard dropout operating out of his garage.
Welcome to the startup world, where a good idea and a convincing pitch can kickstart the path to global dominance. Just ask the founders of Facebook or Google! But the phenomenal growth achieved by the tiny cluster of startups that became household names is misleading. Making it big in the startup sector isn’t easy. In fact, you’d better be in it for the long haul and learn to avoid the most common pitfalls.
Fortunately, there’s a hands-on field guide to assist you in doing just that. Author Rand Fishkin discusses more in his book Lost and Founder: A Painfully Honest Field Guide to the Startup World, including why hiring the wrong investors could ruin your business and more!
The majority of startups take years to succeed, and only a small fraction of those that do make it become millionaires. Take it from Stephanie Walden, author of “Startup Success by Numbers,” a 2014 article. According to her research, only around a quarter of venture capital-backed early-stage enterprises turn a profit. Only 5% of all startups generate a profit, but those that do are frequently worth millions or even billions of dollars.
Moz, the author’s firm, was launched in 2004 and went through a lot of ups and downs before ultimately finding its stride in 2017. There was a failure for every accomplishment. Raising and spending funds, employing and firing employees, and launching and discontinuing items were all difficult balancing tasks. At any moment in time, a bad decision could have ruined the company. But what about the payoff? Annual revenue is estimated to be over $45 million.
It’s vital to keep in mind, though, that company founders don’t make a lot of money at first. Because salaries are established by outside investors, they are frequently lower than those of employees at larger organizations. That means that if you want to make a lot of money, you’re better off working for a market leader than starting your own business.
It takes time, work, and dedication to get your startup off the ground. However, even if you overcome all of the obstacles, you’ll still need to locate a buyer for your stock.
What gives Airbnb and Uber a competitive advantage in their respective markets? Market research is a two-word phrase. If you want to be successful, you must provide something that better meets the wants of your customers than your competitors.
Take, for example, Airbnb. It noticed a void in the market. Many people wanted to book vacation home rentals online, but there was no easy-to-use tool available. Customers were forced to rely on Craigslist, which lacked a variety of essential services. It was the ideal market for a rental expert to enter.
The good news is that such opportunities abound and are just waiting to be identified. So, where do you start looking for them? Taking a page from Airbnb’s book is a fantastic place to start. The company, like many other successful companies, focused its efforts on improving something that previously existed. To accomplish so, it stressed its unique selling point: that its service made consumers’ lives easier and more joyful.
However, spotting these kinds of market flaws requires time and humility. You must devote the necessary time and perform thorough investigation. It’s equally crucial to admit when you’ve made a mistake. Accept that your service will not be ideal from the start and focus on improving the user experience.
Uber and Yelp are examples of how this can be done. Uber, for example, saw an opportunity by looking at search engine data to see how many requests included the word “taxi.” Yelp followed a similar method, counting the number of searches that included the words “restaurant” and the city’s name. Their methodical approach paid off. They knew everything they needed to know about the market they were entering when they introduced their services.
So, you’ve come up with a brilliant business concept. All you have to do now is get some funds to get it started, right? That’s not entirely true. There is no such thing as a free lunch, as the old adage goes. You might prefer deep-pocketed silent partners, but your investors aren’t going to see it that way.
Raising money restricts your options. You’ll be relating your performance to their expectations once you’ve gotten investors on board. As a result, you’ll be under pressure to meet goals and maintain steady growth. They want to know how much money they’ve spent. They will not hesitate to take action if your accounts begin to look fragile. That might mean anything from having you ousted as CEO to pushing for high-risk tactics that could lead to your company’s demise.
But don’t take it all too seriously. Your investors are likewise under a lot of pressure to provide a positive return on their investment. The majority of venture capitalists (VCs) use funds raised from limited partners (LPs) rather than their own funds. A VC’s standard goal is to triple the LP’s investment in ten years!
There’s one more thing to remember about investing: it’s a high-risk endeavor. The average return on investment is extremely poor. That means your investors are placing a wager on you being one of the very few companies that succeed.
For investors, success entails a multibillion-dollar revenue stream. That’s quite uncommon; in fact, only around 5% of investing firms actually attain that goal. When they do, it’s because they’ve hedged their bets and have a portfolio with dozens, if not hundreds, of different investments. Failure is an unavoidable component of investing: five out of ten enterprises in which investors put their money will fail, while three out of ten will produce only marginal returns.
The numbers for start-ups are just as ominous. According to data collected by the National Venture Capital Association in 2015, 30 to 40% of well-established firms fail to return any revenue to investors. If you’re getting VC money, you’ll need a solid plan to get your company into the top 5% of successful businesses.
It’s difficult to run a business from the ground up. So, what should you do if you have a problem? Many entrepreneurs are tempted to conceal the truth in order to protect their staff and clients, but this is typically a risky decision. A lack of transparency can jeopardize not only your connections, but also your company’s growth and revenue. That is to say, it is critical to tackle issues head-on. If a member of your team isn’t performing well, rather than ignoring the problem, strive to find a solution, such as further mentoring.
It’s also a good idea to be honest about your financial problems. After all, no one wants to be laid off at the company. When you tell your team that things are tough, they will be more motivated to go the additional mile and meet those crucial goals. Leaving people in the dark, on the other hand, will almost certainly engender hostility – the last thing you need in a pinch!
Openness, particularly about flaws and setbacks, is also essential for motivating and encouraging your staff to put their best foot forward. People enjoy a challenge, and if you’re honest with them, they’ll be more willing to assist you. And it’s a two-way street when it comes to trust. The more you put your faith in your team, the more they will put their faith in you.
This is excellent for your CEO reputation in difficult situations like layoffs. Your credibility, as well as the company’s, will be on the line in certain situations. Only by being honest will you be able to keep everyone on your side. Despite this, nine out of 10 managers refuse to share information about impending layoffs with people who will be affected. You’ll want to avoid making that mistake.
Customers are treated in the same way. Even if you try to keep bad news under wraps, it tends to get out, so you might as well be open. That is company policy at the author’s startup. Everyone on the board of directors is required to write emails and lead meetings as though they will be released to the public. This fosters an environment in which even failures may be handled openly, and employees don’t feel left in the dark.
Does your mood have an impact on your work? If you answered yes, consider how it might effect your performance as the CEO of a startup that is fully reliant on its leadership. It’s possible that you’ve said no. It’s still a useful exercise because it’s questions like these that reveal your genuine talents and flaws. And that makes running your business a lot easier.
It’s lot easier to start repairing problems if you’re aware of them. If you know your organization isn’t particularly great in networking, for example, you’ll know you need to focus on that area in order to increase your chances of employing the right people. This is critical since knowledge gaps are a huge roadblock to growth. After all, how can you put out the best product possible if you don’t know how to manufacture it? So, here’s the solution: surround yourself with experts in the areas where you need to get things done.
However, after you’ve determined someone to recruit, your work isn’t done. You must ensure the psychological well-being of your team members if you want them to perform at their best. That involves abandoning tried-and-true leadership principles. For example, displaying sensitivity rather than traditional authoritarianism is a far more successful approach of fostering a productive workplace. Sharing sentiments, voicing worries, and discussing the fear of being judged have all been shown to improve team performance. Empathy is the most constant predictor of a team’s performance, according to Study Aristotle, a Google research project that has been running since 2012.
Being conscious of your flaws will not only help you make better hiring decisions, but it will also make your employees happier and more productive!
Check out my related post: What to do if an angel investor says no?