101 on the Startup Journey
Increase chances of success: decrease the impact of failure.
I have attended a number of world-class startup accelerators (including Kiuas (Finland) and Google for Startups). While there are commonalities there are also significant differences. For good measure, I also signed up for the Y Combinator open Summer School to compare further. This article captures many of the key learnings from across the board.
Apart from one acquisition, my startup career has stubbornly been refusing to take off in a big way. Since I am also stubborn (the generous might say determined), I have refused to give up. My way to fight back is to explore deeper and wider, observe more closely how other founders are succeeding or failing, and gather the findings to help reduce risk. This is in some ways a fool's errand, as there are so many dimensions to startup success that it is hard to isolate one from the other in any specific case.
Regardless of the merits, this article is an attempt to collate and share what I have learnt on the journey so far. In addition to my recent accelerator experiences, I have been in and around the Finnish startup scene since 2006. The majority of founders have to deal with failure, so I have also tried to provide guidance on how to manage and mitigate inevitable failures.
I first wrote these tips on Twitter, as I appreciate the discipline of being concise and adding a supporting reference to each point. This enables me to make this article interactive via using this bluebird emoji 🐦 to link to the tweets. To engage around points follow the link 😊 Here is the first link to the thread-of-threads tweet that links all the points together [🐦 ].
Enjoy the journey!
1. Why a startup is not a normal business
[🐦 001] Startups are about rapid growth. Technological innovation delivers magnitudinal benefits to break through existing growth constraints. Until a scalable business model is proven, it’s a financial research project.
[🐦 002] The ability to grow rapidly differentiates startups from normal businesses. Startups seek technology-driven innovation to bypass existing market constraints (e.g. geographical reach, hourly billing, etc).
[🐦 003] You might have a great business idea but, unless it can be scaled rapidly across borders, it’s an SME and not a startup (aka Innovation Driven Enterprise (IDE).
[🐦 004] The tech media tends to focus on either startup success stories or outlandish failures. The vast majority of failures pass under the radar. This gives a false impression. [ 📼 How Not To Start A Startup / Michael Seibel]
[🐦 005] Early stage startup founders are more like economic research scientists looking for innovative business solutions that can be rapidly scaled.
[🐦 006] To be a startup founder you need to live with a great deal of cognitive dissonance: statistically you accept that a startup is most likely to fail but at the same time you need to believe wholeheartedly that your startup will be a major success.
[🐦 007] An angel investor rule of thumb is that out of 10 startup investments around 6 will go bankrupt, 3 will return the investment, and 2 will return multiples sufficient to cover the losses and bring in overall net gains.
[🐦 008] VC investing is subject to the Power Law Curve, whereby a few successes bring in a portfolio’s gains. The limited availability of high-growth startups means that it is generally better for a fund to focus on limited number of startups with the potential for at least 10x returns.
[🐦 009] Startup success is relative. Given that over 90% of startups fail to become high-growth companies, early-stage VCs target startups in the middle of the S-curve, where 20%-30% month-over-month growth is considered de rigueur rather than exceptional.
[🐦 010] Startup risk is so high because there are so many areas in which a team needs to succeed. Even if the chance of success in each area is reasonable, when combined the probability of failure compounds.
[🐦 011] Pre-revenue startup valuations look strange to many as they are not based on P&L. The investments are bets on potential future revenues via a disruptive innovation (with a defensible position) in a massive market. The amount given is related to de-risking done and location norms.
[🐦 012] Startup investors rely on upstream funding to protect their investments or generate exits. Later-round investors rely on large acquisitions or IPOs.
[🐦 013] I sometimes us the metaphor of startup as sailing: Are you sailing to take over part of a known island (existing market)? Or a known archipelago to take over one of the islands (low-cost or niche entrant)? Or are you looking for an uncharted island (new market)? The former can be SMEs, the latter startups. [Startup as Sailing / Richard von Kaufmann]
[🐦 014] You would not expect to kayak some competition rapids the first time without failure. Google and Facebook are outliers. When entering into a career in entrepreneurship, you should expect to fail numerous times before (with luck) you succeed. So best enjoy the thrill of the ride!
[🐦 015] The next section leads into things you should consider about yourself and your situation before deciding to pursue a startup career.
2. Should you start a startup
[🐦 016] Personal attributes and circumstances to consider before founding a startup. Pursuing startups is “statistically” going to result in opportunity costs that will make one poorer than more conventional careers. Some things to consider before diving in:
[🐦 017] Each failed earnest startup attempt (+ recoup) takes at least 2–3 years. And to harvest the yields of a successful startup takes 7–10 years. This barely allows enough attempts for a highly optimistic 20% chance of success. So why does anyone try?
[🐦 018] Being a startup founder has similar appeals to other volatile [high beta] vocations (eg actor, novelist, etc). So passion partly overrides logic. If, however, you are exceptionally talent and well placed, the risk to potential reward ratio starts to make sense.
[🐦 019] To be a startup founder you need to be exceptional. But not at everything. An entrepreneur is more likely to be someone who focuses on something they are passionate about and good at. Rather than overall high performers. [ 📼 Six Myths of Entrepreneurship / Bill Aulet / MIT]
[🐦 020] Being above average enables successful careers in most professions but as a startup founder you should be exceptional (in some regard), and be able and in a position to work exceptionally hard. Otherwise the odds don’t make sense.
[🐦 021] When preparing to climb a large mountain or embark on a sailing adventure, there are best practices you can learn to reduce risk and improve chances of success. The same with startup endeavours.
[🐦 022] Despite the overwhelming risks you still want to be a startup founder then, as with becoming a sports professional or musician, the quickest way to learn is to start doing.
[🐦 023] To succeed in startup it is important to hack your motivations. The demands will otherwise crush your energy. Even if you love the idea and/or your co-founders at the start, you will come at times to feel oppressed by them. Mediocre interest will fail. [ 📼 How not to start a startup / Michael Seibel]
[🐦 024] The motivation of athletes, pop artists, authors, etc. can be supported. But unless there is an inner desire and enjoyment driving the pursuit of excellence, then remarkable success will likely remain elusive.
[🐦 025] Why attitude is everything for a startup: Attitude = values in action; actions repeated become habits; habits ingrained become culture; culture eats strategy for breakfast!
[🐦 026] Startup culture is set right at the start. Start as you mean to go on. People look to the founders as the model of what’s important, and what are the core heuristic decision drivers. First employees then form the cultural DNA that defines future hires. [ 📼 Building Culture / Tim Brady]
[🐦 027] Love your problem; love the people you are building a solution for. You can’t fake enthusiasm over the long-haul. The founder energy for the problem and the people will drive the startup forward.
[🐦 028] Fail fast — Scale fast: Make sure you can afford to fail many times so that you have a chance to find customer/product fit and then you must go very fast not to lose the window of opportunity. [ 📼 Aaltoes talk / Mårten Mickos]
The next section leads into things you should consider regarding building up sufficient social capital both within a startup ecosystem and within the customer networks need for trials.
3. Why social capital and credibility are crucial for startup success.
[🐦 029] The risks involved in early-stage startups is so high that it requires great faith amongst all the people involved. You need to first gain their trust.
[🐦 030] For a first time startup founder you need to make an effort to build trusted social bonds with people in your local startup ecosystem. The more your communities want you to succeed the more likely you are to succeed.
[🐦 031] Many top founders have come from the management teams of youth-led startup organizations. Apart from being talented, the intense networking opportunities creates trusted connections. Trust is the universal lubricant for risk-taking relationships. [Slush and Other Startup Stories / Richard von Kaufmann]
[🐦 032] In 2010 Business Finland produced a guide for startups raising funds in Silicon Valley. A repeated piece of advice was the need for trusted connections. eg Teemu Huuhtanen (Next Games, Rovio, Sulake) recommended investing 2–3 years building relationships.
[🐦 033] Pre-seed investments for unproven, pre-traction startup founders are almost never made over the transom. There is always a backstory of connections, either directly or via trusted introductions.
[🐦 034] Putting together founding teams, and getting pre-traction investment, is all about trust in individuals. If people don’t trust (or like you), getting co-founders and pre-seed funding requires great “proven” prowess. Trust creation is rarely addressed in startup training programs.
[🐦 035] The necessity to build startup ecosystem social bonds to enhance the chances of startup success does not mean you need to be a party animal. But it does mean that either you or a fellow co-founder is enjoying the company at some ecosystem “table(s)” of significance.
[🐦 036] To implement and execute your startup innovation you need to make sure you have an exceptional team that is aware of the risks and willing to put aspects of their lives on the line. They must buy into the dream and believe in the upside possibilities.
[🐦 037] Startups initially need the help of innovators and early adopters. Ideally you should have a trusted network of such people. If not, you need a plan how to reach out to them at a human-to-human level. Persuading people to use an untested innovation requires significant faith.
[🐦 038] Be aware of entrepreneurship downsides: constant pressure and worries that have to be dealt often in a state of isolation. [What Nobody Says About Entrepreneurship / Forbes]
[🐦 039] Having a co-founder helps share the burden of startup creation. Unless you can develop an MVP (Minimal Viable Product) by yourself you should probably have a technical co-founder. This way you don’t need anyone’s approval (eg investors) to make progress.
[🐦 040] As startups are so hard, you should have some previous experience with a co-founder: job, project, university, etc. Two days as friends tells more than an interview. Co-founders should be able to survive for a year without salary & ideally work full-time.
The next section leads into why it’s important to select a startup idea that is suitable for your specific team.
4. How to pick a startup idea.
[🐦 041] Teams and markets are ultimately more important than initial ideas; however, an inspirational idea can be instrumental in bringing the team together in the first place. Suitable ideas are also in sync with founder passions.
[🐦 042] Teams and markets are ultimately more important than ideas. But good ideas are like flags to attract the best people to march under.
[🐦 043] The best starting point for a startup idea is one that is compelling and easy to explain. So that when you develop it into a great product people will want (and be able) to tell their friends/colleagues about it.
[🐦 044] Markets/trends that are growing exponentially are important for startups because a) you can ride the growth wave and b) it’s challenging to enter established markets defending the status quo. Newer growing markets are more willing to try innovations.
[🐦 045] Pick a startup idea that matters to attract greater support in the competitive environment. It can be simple to start with but the vision should grow to be seen as something that is a hard, worthwhile challenge. [📼 How to Succeed with Startup / Sam Altman]
[🐦 046] An important aspect of a startup idea that it is a good idea for your team. If the team’s psychic energies are not aligned with the idea, then it doesn’t matter how good the idea is from a general perspective, as it is unlikely to get fully realized.
[🐦 047] If a startup idea requires funding for a prototype/MVP, then a potential founder needs to be either: a renowned expert in the space; have a past startup success; a deeply-connected supportive ecosystem network; or access to personal financial resources.
[🐦 048] If you don’t have the personal resources or existing credibility to raise funding to pursue a particular startup idea then select another one you can build independently and get initial customers. Don’t let others be your gatekeepers! [ 📼 How not to start a startup / Michael Seibel]
[🐦 049] You will need to test your startup MVP to get enough feedback to move toward customer/market fit. But do you have access to a relevant “laboratory” to run the experiments? Do you have good industry connections with the lab key? If not, you need to have a plan how to develop them.
[🐦 050] “Founder”/market fit means that the startup founders are suitably aligned: passion for the problem and the customers (often overlooked); sufficient skills or resources to implement an MVP; opportunity to see valuable gaps in the market; and build networks with segment players.
[🐦 051] You need to have passion for both the startup idea and the users, otherwise you will lose the motivation to keep going during the inevitable hard times. [ 📼 How not to start a startup / Michael Seibel]
[🐦 052] There are many great ideas that are clearly desirable and lucrative, e.g. a cure for cancer. But does your team have a good chance for making a feasible solution.
[🐦 053] Or you might have a startup idea that is desirable and feasible, e.g. water purification for remote areas in developing markets. But is it financially viable?
[🐦 054] The problem a startup is solving should ideally be: popular (a lot of people have the problem), the market is growing, it’s urgent (needed right away), expensive (you can charge a lot, or a lot of people), mandatory (bonus: legally required) and frequent.
[🐦 055] A problem should be frequent. If it is not frequent it needs to be a massive problem people are willing to pay for. There are many genuine problems but they are often not big or frequent enough. [ 📼 How to Evaluate Startup Ideas / Kevin Hale]
[🐦 056] Select a startup idea which can dominate in a niche sector that can be expanded into a large market. The innovation should be orders of magnitude better in some significant way: faster, bigger, cheaper, etc.
[🐦 057] Hard startup ideas can often be the best. Less people are doing them and the best people usually like to work on challenging and worthwhile solutions. [Hard Startups / Sam Altman]
[🐦 058] Don’t be scared by the less appealing stuff. “That scariness makes ambitious ideas doubly valuable. In addition to their intrinsic value, they’re like undervalued stocks in the sense that there’s less demand for them among founders.” [Want to Start a Startup / Paul Graham]
[🐦 059] Bear in mind, whether you are working on a “sexy” startup idea or a more mundane functional one, the day-to-day work at your computer will be the pretty much the same. An idea not taking off soon loses its sex appeal and visa versa.
[🐦 060] Check if your startup idea might have fallen into the “feature, not product” trap. Often start ideas are not big enough to be standalone products and should be features on existing services.
[🐦 061] A startup inevitably means changing peoples’ behaviour in a meaningful way. To make this happen there needs to be Motivation (the problem is significant), the Ability (your easy solution), and a Trigger (what is the thing that will make people opt for your solution).
[🐦 062] What are the triggers/touchpoints were people will encounter your startup solution while they have the motivation. After first use startups need to ensure enough triggers (i.e. contextually-sensitive real-world reminders, notifications, etc.) to keep the solution front of mind.
[🐦 063] A startup idea is a hypothesis about how your business will grow quickly. It consists of the problem (the context of the company), the solution (what is the experiment you are running), insight (why is your experiment likely to be successful). [How to Evaluate Startup Ideas / Kevin Hale]
[🐦 064] Ideally a startup idea should solve a problem that it is as if the customer’s hair is on fire, i.e. they would be willing to buy your brick (rough MVP) to bash the fire out if it’s the only solution available to them. [analogy used by Sequoia]
[🐦 065] One way to filter alternative startup ideas is to score them:
[🐦 066] Chances are you will not immediately unearth a doable hair-on-fire problem. So if you are serious about startup you should start building a great team around a good enough problem to get going.
The next section will lead into a review on how to increase the chances of finding startup “customer”/product fit. This is a critical step before you start to invest in exploring product/market fit.
Finding product/customer fit
[🐦 067] Until you have at least one or two customers loving your startup solution, then product/market fit exploration should be avoided; otherwise you can waste precious funds trying to push out an ultimately unsuitable product.
[🐦 068] All things being more or less equal, the biggest difference between startups that succeed and startups that fail is market pull. Strong market pull will overcome the inevitable mistakes and challenges. Making sales is the fastest way to test market pull.
[🐦 069] To prove product/market fit, a startup needs traction numbers showing their solution is desirable (to a big market), feasible (can be built), and viable (can make money). By starting with customer/product fit (i.e. you have 1–2 very happy customers) you can tick off feasibility.
[🐦 070] Some startup ideas have great markets but have high technical risk (e.g. nuclear fusion). Others have low technical risks but high market risks. Funding rounds are based on how much de-risking has been done and key inflection points that indicate direction of future progress.
[🐦 071] Early-stage investment focus on the “Will many people pay?” inflection point. For later stage other de-risking factors need to be proven: Can we scale without excessive churn? Does the growth process scale? Can we scale profitably? Can we keep scaling? etc
[🐦 072] A sales meeting can feel positive. But it is most likely a failure if you don’t get one of the following outcomes: a prospect brings in a colleague; they agree to test a pilot; commitment to pay for the solution. Without such take the learnings and move on.
[🐦 073] A pre-traction startup needs commitment, validation and revenue. A free trial gets you none of these. Instead offer customers a money-back satisfaction guarantee.
[🐦 074] How startup develops their sales process largely depends on the customer ARPA (Average Revenue Per Account). Big accounts can justify expensive human-to-human engagement. Small accounts need more self-service automation.
[🐦 075] A sales funnel funnel is based on the customer journey (how they come to interact and engage with the product); whereas the pipeline outlines the sales process.
[🐦 076] The LAND-EXPAND bow-tie inspired SAAS Sales Method is particularly suitable for many startups with reoccurring business models.
[🐦 077] Focusing on the Emotional Impact before the Rational Impact. People think first how your solution would either be a benefit or risk for them: Does it make their life easier? Will it help them get promoted? or get fired? Rationality then justifies decision.
[🐦 078] The SAAS Sales Method adds a focus on the impacts. For feedback on the impact of the Impacts you asking: What did you originally buy the product for? After using the product what did you find the most value coming out of it? Can reveal new insights.
[🐦 079] Startup founders should be instrumental in formulating the initial versions of the Marketing, Sales, and Customer Success Playbooks.
[🐦 080] Product Market Fit is seen on the consumer side when there is exponential organic growth (spread by word-of-mouth), or, on the enterprise side, when the sales activity brings in more than it costs. Or customers scream when a product trial is pulled.
The next section will cover insights into surviving the failures and occasional successes of life as a startup entrepreneur.
7. How to survive startup failure(s) and success
[🐦 081] Mountain climbing is risky. So is sailing/flying around the world. People die doing such. But the majority don’t due to rigorous preparations. See the risk, reduce the risk, take the risk — learn to fly
[🐦 082] Startups are not like science. Every great company is unique. You can’t make another Microsoft, Google, etc. Testing hypotheses can help avoid unprofitable startup ideas, but a groundbreaking startup idea is not experimentally verifiable or repeatable. [Going from Zero to One / Peter Thiel]
[🐦 083] Given all the elements needed for success, it is hard to filter out precise reasons for failure. But undertaking the journey sharpens learning and failing intensifies focus. But the important thing is to move on and keep on keeping on…
[🐦 084] The main motivation for wanting to be a startup entrepreneur should be to bring some innovation into the world. In some cases, a solution that would not exist without your drive. Wanting to be rich or famous won’t sustain you through the hard times ahead.
[🐦 085] Entrepreneurship is not a job, but in some sense, you need to view investors as employers. You create opportunity. VCs are doing a job and (good) angels understand the risks. If you have done your best, you don’t need to feel guilt over lost funds. Likely you paid a higher price!
[🐦 086] If you enjoy being an entrepreneur and your startup becomes a profitable SME or a lifestyle business that’s success by anyone’s standards — except for VCs as they need at least 10x multiples to cover portfolio losses.
[🐦 087] If you do set out to be an entrepreneur, it is important to consider the options in the high likelihood your startup fails. Having a good network in the startup community is the closest to having a parachute, as the simpatico successful founders are more likely to give you a job.
[🐦 088] Entrepreneurship skills can be applied outside of startups. As long as you are passionate about the area, enjoy the people, and invest in own skills, if a startup fails your time has not been wasted. There will, however, be opportunity costs forfeited compared to safer options.
[🐦 089] Constantly exploring like an entrepreneur and endeavouring to get businesses flying will make you more likely to succeed. Statistically, it is safer to invest in a founder with previous failures than a first-time founder. Make it a habit to keep getting back up! Become excellent!
[🐦 090] Be aware that it takes greater strength of character to handle success than failure. Success is just the start of greater challenges. The difference is you get to work on better and more impactful problems. And you are also in a better position to help others and save the planet!
[🐦 091] Take heart when in the startup arena: “Who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”
Go bravely forth and manifest your ideas into reality. And if you fail get up and try again, or go help others with your improved skills and learnings, and then try again 😅
Did you find these helpful? What’s missing? DM me on Twitter @richievk
Will later add ten more top tips to reach my 101 aim:
Last Top Ten Tips …
#StartupIdeas
[🐦 092] “Tarpit ideas”: Wide-spread ideas that seem like they could be solved by a startup BUT there are structural reasons why they are extremely difficult, e.g. the app to meet up with your friends. [The author has fallen into exactly this tarpit, so can confirm its veracity 😂]
[🐦 094] How easy is to sell to your potential customers? Certain professions rarely change their tools/software (e.g. plumbers/contractors) compared to startups that are more open to trying new solutions.
[🐦 095] Startups are good to sell to because they inherently employ proportionally more techies. And techies can often be found in the 2.5% of Innovators in the Diffusion of Innovation curve. Without innovators willing to try your product, it’s exceptionally hard to kickstart traction.
#CustomerDiscovery
[🐦 096] Questions to ask potential startup customers to help them provide actionable information. In addition to the questions below start with: Does your company care about X? What actions have you taken regarding X?
[🐦 097] Your startup’s users and customers will keep you honest as they already have a stake in the game. So it’s critical for founders to stay engaged with customers at all stages.
[🐦 098]
[🐦 099]
[🐦 100]
[🐦 101]
