HOW TO AVOID YOUR B2B STARTUP FROM FLOPPING
These are the top 4 reasons that startups fail according to CB Insights. (“The Top 20 Reasons Startups Fail”); No Market Need - 42%, Ran out of Cash - 29%, Not the Right Team - 23%, Get Outcompeted - 19%
But these reasons don’t provide insight into why founders create products that don’t meet a market need, or why they get outcompeted.
In my experience (25+ years in high tech, including; Matrox Graphics – $0 to $1B in 4 years, ConnectGood - my own failed startup, ugh!, consulting for dozens of startups and entrepreneur mentoring, etc…) startups generally fail because of one of three behavioral mistakes that founders make;
1. Focused on the wrong things
Many startups spend too much time attending meetups, participating in pitch competitions or revising their mission statement. This is classic "startup porn". Defined as; “A collection of entertaining, stimulating, and worthless activities that distract an entrepreneur from focusing on what really matters, hindering future achievements.”
The other big time sink for startups is around product development. Building a product shouldn't happen until there is a deep understanding of the target market. As well as an intimate knowledge of the problems your product addresses. The symptoms of the focus on the wrong things are easy to spot. The founders are more excited to talk about the product than their customers and the market need.
Steve Blank, the grandfather of the Lean Startup ("The Four Steps to the Epiphany"). He identifies "premature execution" as a primary source of failure for early-stage startups. Founders need to have a learning and iterating mindset before they try to launch. That learning only happens by “getting out of the building” and engaging with customers.
Focusing on the wrong things is well understood and written a lot about. Yet, many startup founders continue to make this mistake. The top priority in the early stages of a startup is to find product-market fit. Startups need to determine if they have a viable product that customers are willing to pay for. Everything else is a distraction.
2. Lack of experience with the problem they want to solve and/or no understanding of the industry they are targeting
Ideas are a dime a dozen. You need to have deep domain knowledge and/or a real desire to fix the problem you are addressing. Without this, it will be a real struggle to convert an idea into a viable product.
A startup is challenging. If you don’t have a REAL* desire to fix the problem you are targeting then you are likely going to abandon the endeavor at some point when the going gets tough, and there will always be challenging times.
*REAL desire = There are a lot of startups that create a fictional story around how they got started. This doesn’t cut it. The desire has to be real. Having a heart attack and almost dying. Subsequently wanting to build a health care product that reduces people’s likelihood of getting a heart attack. That is real. Stubbing your toe once on a doorstep and wanting to build a new type of doorstep isn’t a real desire that will carry you through the challenging times.
The background, experience, and personality of the founders need to fit with the product idea. Building a healthcare app to help cancer survivors overcome depression sounds like a great idea. If the founders have no experience in healthcare and no personal experience with cancer then it is likely a terrible fit.
3. Misunderstanding of what the real competition is
The biggest competitor for a B2B startup is almost never a direct competitor. It’s not LinkedIn, Microsoft, Salesforce or SAP. The biggest competitor is usually the status quo.
Founders need to guide their company by the principal that the status quo is the biggest barrier to adoption of their product. Overcoming the status quo requires a different go to market model. You need to convince customers to risk changing the status quo. Focusing on the wrong competitors leads to poor sales results. First, focus on getting your customers to accept that they need to change the status quo. Then, convince them to buy your solution.
Read more about how B2B tech companies can overcome the status quo here.
In summary, if you want to avoid your B2B startup from failing, do these 3 things –
1. Focus on product market fit. Until you have that, nothing else matters.
2. Your startup needs to center around a problem you care about deeply. And/or you need a thorough understanding of the industry or problem you are targeting
3. Understand that your real competitor is the status quo. All your energy should be on overcoming the “do nothing” bias of your customers.
Oh, and it does help if you build an innovative product that customers actually want!
About the Author: Bryan Socransky is the Principal Consultant of Disruptive Consulting Group. Bryan's experience spans over 25 years in enterprise software and B2B SaaS. He helps enterprise software, SaaS and IT companies grow by disrupting the status quo in favor of their innovative products and services.