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Starting a new business can be challenging, especially for new entrepreneurs. Even more so in the economic climate, challenges, and uncertainly of the past couple of years. Making a go of it after you’ve started is even harder.
The future of your start-up matters greatly, not just financially to you and your other co-founders, but to your families, the people you hired, to your investors, and to your customers. You have managed to get it to its current stage based on hard work, passion, and a commitment to build something you believe your customers need.
Yet, for all the great ideas that led to creating your start-up and all the hard work, passion, and commitment you’ve put into it, your start-up is struggling to go next level, and you are unsure what to do to get out of the rut. Founders can run into any number of issues that can threaten the survival of their start-up, or the degree of its success:
- Your team seemed to handle the early stages of your start-up really well, but in the current stage some of you are struggling and are wondering what can be done about it
- Each of you have been taking on multiple roles and have realized it’s time to bring on new people but are unsure of which roles each of you should occupy going forward and which ones you need to hire
- You are in the process of raising outside capital and want to be able to show investors what you would do with their money and have a good handle on where you are strategically vulnerable
- You feel the team is lacking ‘something’ but none of you can quite put your finger on what that something is
- While all of you may have experience in multiple areas, it is becoming obvious those experiences are insufficient for what is now needed, and you are unsure who is best suited for which role going forward
Whatever the circumstance, Founders often find themselves in challenging or even overwhelming situations where they are unsure what they should do next, or where they can turn to for help.
To know what kind of help is needed, you first need to understand what is happening and why it is happening.
Reasons for Failure…or Symptoms?
As of December 2022, there were 1,203 Unicorn start-ups (worth $1B US or more) worldwide (CB Insights) – the dream of every Founder. But that number is a mere pittance when you realize 305 million start-ups are created globally every year. Failure is more the norm, than the exception:
- 9 out of 10 start-ups don’t make it
- 20% of start-ups fall apart after a year
- 30% of start-ups close within two years
- 50% of start-ups shut their doors within five years.
- 70% of start-ups dissolve within 10 years
We all like to think that our start-up is different, that we are different, that we will succeed where others have not – yet the statistics tell a very different story.
The first start-up I had experience with saw the two Founders get ousted by their VC firm within their first year of investing. The start-up idea was great. So great in fact, it was later sold to PayPal for over $900m USD. The two Founders, however, while great on ideas and certainly had the passion, were not so great on execution or sticking to their strategy or adjusting it when different parts of it were clearly not working. According to the then COO (whom the VC had hired), while laying me off along with 35 others to shut down the Canadian operations, the shutdown might not have occurred had I been hired sooner. I was hired as the Director of Business Technology to translate their great ideas into execution that was tied to the strategy of why the start-up was created.
Unfortunately, the VC firm had made their decision to do the shutdown prior to me being hired and I ran out of runway to save our jobs – even though I had no idea that was what was at stake. Oh, what could have been!
While the start-up was ultimately successful, it was without its Founders and the majority of the original team being in the picture, some of whom were out of work for close to two years afterwards as the dot.com boom went bust. Failed start-ups often leave a wake of hardship beyond the disappointment for its Founders.
A recent study by CBInsights published the “Top 20 reasons” why start-ups fail. But are all of them reasons for failure, or are some of them symptoms of something else?
|Reason or Symptom?||Probable reason for creating symptom?|
|User un-friendly product||Product development team(s) that lack a UX competency|
|Ignore customers||Founders who have not directly worked with customers or had to incorporate their feedback into product design in their past roles and have not hired anyone who has|
|Ran out of cash||Founders who have little to no competency in raising investment capital OR Founders with little to no financial management competency to manage the capital they did raise|
|No market need||Lack of market research competency within the team|
As with an illness, sometimes what may seem obvious due to the symptoms we perceive, may seem far less obvious once we go to our doctor and they probe a little deeper.
The CBInsights study, like most other industry studies of this type, was based on interviews and surveys, which of course have their place. However, they are also heavily laden with opinion and interpretation of the survey questions — which either list the reasons from which the participants are to choose (leading questions) or ask them to list the reasons which is open to recency and other biases, hence the composition of the questions that are asked often determine the results. The danger is when the results which are reported as percentages are perceived to be scientific proof used to make determinations of causation that simply do not exist, often resulting in actions that hastens the end of the start-up.
The IT certification industry has used this same approach to unleash hundreds of frameworks and certifications on the corporate world to solve the reasons for project failures, yet project failure rates have continued unabated for the past 30+ years. For example, studies that reported that 10% of failures resulted from “poor requirements management” led to the creation of the Business Analyst certification, requirements management tools that costs hundreds of thousands of dollars annually, and new organizational structures to support it all. Other reasons cited led to similar responses by industry, Yet, the failure rates did not decline substantively.
It’s like trying to self-diagnose a medical condition which can of course not only be dangerous to your health, it can lead to an untimely and likely avoidable death. Self-diagnosing your start-up and each of your co-Founders, in which you are hardly unbiased, can be no less dangerous for the health of your start-up and its prospects for success , or its survival.
Opinions are not evidence, and evidence is not opinion.
Why does understanding the difference between symptoms and what causes those symptoms matter? Let’s take a look at what scientific research tells us about which start-ups are successful and which ones are not.
What distinguishes successful start-ups from those that are not?
Human Insight conducted research into 101 start-ups across Europe, Africa, and North America to discover what distinguished successful start-ups from those that are not. The assessment they used to conduct the research is backed by Nobel winning research into human behaviour and its characteristics relevant to organizational growth and execution based on its strategy.
They found successful start-ups exhibit certain characteristics among the key members of the Founder’s team:
“Each of these types of people <Hipsters, Hustlers, and Hackers> brings certain and unique talents with them and covers a range of result areas needed to test, iterate, and market a business idea. However, we have found that a lot of start-ups are not able to recruit the best people from day one. So, what is often seen in these early days is befriended coworkers, relatives, or school buddies that have found each other and want to see if they can successfully bring their idea to life.” (Hipsters, Hustlers, and Hackers — Human Insight, 2021)
The challenge with start-up teams is a tendency many of us have to gravitate to people who think like we do, otherwise known as “birds-of-a-feather”. Birds-of-a-feather may be great to get your start-up off the ground, but will prove problematic beyond that, which the research proves to be true. You will notice in the graphic the difference between successful and failed start-ups is the distribution of the Founders across the quadrants – the more distributed they are, the more successful they are.
NOTE: The red tick mark in the CBInsights graphic next to “Not the right team” is ours and is a core reason for many of the symptoms of failure that are listed by CBInsights – not the right team.
Human Insight’s assessment, which we offer through The Hive, enables start-up Founders to gain the necessary insights into their unique individual characteristics and how they align (or not) to the needs of their business and the strategies that are necessary for its success, independent of the type of start-up or its geography.
In other words, it helps you to understand if you have the right team for the strategy, execution, and growth, relevant to the current and impending stage of your start-up. Not having the right team, or not having people in the right roles, creates strategic vulnerabilities, which when left unaddressed, will likely lead to the failure of your start-up, or leave it sputtering along, never quite failing, but never quite making it either.
Human Insight measures the relevant characteristics across three dimensions. Some people are more content-oriented while others are more relationship-oriented. Some are more exploration-oriented while others more stability-oriented. Some are more detail-oriented while others are more of a big picture type. Individually we can fall anywhere between each of these extremes – there is no right or wrong position, there just is the “who I am” position.
The mix of these characteristics within the Founders and their teams, however, if not identified, understood, and actions taken based on that understanding, will ultimately determine the degree of success of their start-up, or lead to its failure.
Understanding these characteristics and their implications, helps us to also identify the degree to which certain competencies come more naturally to each Founder, as well as which competencies are needed based on the current and impending stages of your start-up.
So which competencies matter most in start-ups?
Competencies that Matter
Competencies are the skills, knowledge, and abilities that individuals need to perform their roles effectively, which is critical for Founders to understand if they want a successful start-up. Which competencies are relevant will change based on the stage your start-up is in.
The two Founders in my start-up experience at first did not understand they were unable to bridge the gap between coming up with great ideas and turning those ideas into shippable working products and capabilities that customers need. They only came to that realization and hired someone like me when it was already too late. You don’t need to make the same kinds of mistakes in that or any other aspect of your start-up.
Here are five competencies that matter to start-ups:
- Leadership Competencies: Founders need to be effective leaders to engage and enable their teams, with a clear vision and direction to ensure their business is moving towards its goals. Leadership competencies include strategic thinking, adaptability and agility, creative thinking, good communications, etc.
- Financial Competencies: Founders need to have a good understanding of financial management to make informed decisions about budgeting, fundraising, and investing. Financial competencies include financial analysis, cash flow management, budgeting, fundraising, and financial forecasting.
- Marketing Competencies: Founders need to have a good understanding of marketing to create and execute successful marketing strategies that drive business growth. Marketing competencies include market analysis, branding, digital marketing, sales, and customer experience. competencies can help to overcome.
- Execution Competencies: Founders need to have a good understanding of how to turn their brilliant ideas from working prototypes into working and shippable products and services. My two founders kept changing the prototypes, often they made changes multiple times in the same week.
- Networking Competencies: Founders need to have a good understanding of networking to establish and maintain relationships with stakeholders such as investors, customers, and partners. Networking competencies include relationship building, communication, negotiation, and collaboration.
The presence of, or lack of, these competencies within you and your co-Founders can have a significant impact on your fortunes. A study by Harvard Business Review found that start-ups with Founders who had strong leadership skills were more likely to succeed than those without.
Another study by McKinsey and Company found that start-ups with strong marketing competencies were more likely to achieve growth and profitability. As an example of a competency that addresses areas of start-up failure, more developed marketing competencies in the Founders may avoid failures such as poor market fit, ignoring customers, and building user unfriendly products.
It does not mean though, that each individual Founder needs to have all of these competencies – only that they need to exist somewhere within the Founders or other members of their team.
How might we act on those insights to enable our start-up to succeed?
Pathways to Competencies
When we talk about competency development the most common approach is via professional development through formal coursework, and in large corporations, this is often the preferred pathway. The downside to this pathway is that the benefits from most forms of professional development can take a long time to become visible – time that your start-up may not have.
An alternative, and also complimentary pathway, is through Coaching and Mentoring.
A Mentor is someone who shares their knowledge, skills and/or experience, to help another develop and grow. As a result, mentors can significantly shorten your professional development timeline as they already have the “been there, done that, here’s what you need to do right now” insights that Founders need when things are going off the rails.
A Coach is someone who provides guidance to a client on their goals and helps them reach their full potential. They help you dig more deeply into who you are and what you are trying to accomplish overall so you can make specific actions or make the necessary adjustments in what you are doing, to help you get there.
Both Mentors and Coaches can help you identify additional formal professional development that would be beneficial to you, or your team, based on your current and impeding start-up stage.
To decide which pathway or combination of pathways is right for your start-up, we need to identify:
- Which competencies are more prominent in each of the Founders
- Which ones are most relevant to your current and impending start-up stage
- Which ones need further development
- Which ones might best be hired or contracted out
Assessing Team Competencies to Unlock your Start-up Success Story
Start-ups that succeed have the right combinations of competencies within the Founders team as well as within their larger start-up team. Being able to scientifically assess the competency profiles of your team also helps you uncover your start-up’s strategic vulnerabilities.
If your co-Founders are skeptical about the value of the assessments and what they provide, we’d suggest a Start-ups & You assessment which includes:
- Individual assessment
- 3600 assessments which are sent to 5 people of your choice
- Personalized report including the 3600 assessments
- Individual competency profile based on 38 competencies that are necessary in every workplace (includes the ones that matter most to Founders)
- 60-minute 1-on-1 debrief leading to an individualized professional development plan
NOTE: The cost of the Start-ups & You assessment would be credited toward Start-ups & Leadership should you be able to convince your co-Founders to go ahead with the full team assessment.
Our Start-ups & Leadership program has four steps:
Step 1: Identify and Assess
- Introductory call and planning session with at least one member of your team to get insights into your start-up, your products and services, business model, current stage, and your challenges
- Get the names and email addresses of 5-8 of your Team members who will participate along with up to 3-5 colleagues for each Team member whom they will ask to do their 3600 assessments
- Schedule and complete Assessments
Step 2: Analyze
- Analyze Assessment results (The Hive)
- Prepare Reports and presentation materials (The Hive)
- Report reviews (your team)
Step 3: Strategize
- Team and individual debriefs
- Competency development planning
Step 4: Execute
- Engage Coaches and/or Mentors
- Engage Education/Training Providers
- Monitor Progress and Adjust
Still not sure?
- Attend our free no-obligation webinar on April 27th at 11AM EST where we will explain both how it works and why it works. You can register here
- Reach out to me directly for a free one-on-one on how we can help your start-up significantly improve it’s odds of being successful
About The Hive Professional Network
At The Hive, we are committed to providing people and organizations with the insights, coaching, and mentoring they need to become who they are meant to be so they can realize their true potential in work and in life. To do this we are building an ecosystem for coaches and those seeking coaches to find their perfect match through our proprietary matching algorithm, unique platform, and strategic partnerships.
Find your Hive
Are you a Coach? Join The Hive and get set to take your coaching business to a whole new level in 2023 and beyond.
Are you looking for a Coach? Join The Hive to find a Coach to help you reach personal and professional objectives.
Larry Cooper is the Chief Strategy Officer and A/CTO at The Hive Professional Network.
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