You are excited. You’ve made the decision in the midst of the Pandemic to start your own venture. Congratulations!
You are joining a record number of entrepreneurs. US Census reports that startups are up 77% over just the last quarter, with the greatest increase in New England. We’ve seen increases in new ventures after previous recessions and many of today’s biggest tech names were launched as the founders saw opportunities as traditional companies struggled and failed. However, the entrepreneurial spirit arising out of the wreckage of the global pandemic is truly awesome. We can’t wait to see what the new entrepreneurs will produce!
But here is the sobering truth – Most startups end in failure.
The Bureau of Labor statistics estimate that 20% fail in the first year, 34% by the end of two years and 47% by the end of five years. That may sound bleak.
But there is good news – companies that use structured mentoring and advising programs do perform better. How much such programs increase the odds is debated -- some claim to raise the survival rate to 80%. Whatever the actual number is, a study in the Harvard Business Review concluded “the value of accelerators seems (to be) real and likely comes from the intensive learning environment itself.”
The International Business Accelerator (IBA) holds a unique position in the US, having been the first accelerator to broaden the focus of the founders from beyond the US market (which only accounts for a little more than 20% of global GDP). We strongly believe that any company with a product or service with global potential must develop itself as a global company.
We at the IBA have worked with hundreds of startups over the years and have seen both successes and failures. Based on that experience, we have identified key attributes that successful startups share.
Here are our words of advice to the 2020 class of COVID pandemic entrepreneurs:
1. Choose Your Team Wisely
The single greatest reason for startup failure is a breakdown in the founding team. Some of the problems arise from diverging visions while others result from unresolved personal issues. Managing a founding team, like every interpersonal relationship, requires lots of communication, listening and humility. (Another red flag is the go-it-alone founder – very few succeed. You need to build a team.) One of the most important functions of the IBA is to identify issues that could undermine cohesion of the founding team and to create company processes that ensure success.
2. Be Customer Centric
Entrepreneurs come in with a vision for the product or service. The question is whether the end-customer sees the same vision. Founders need to listen to customers and shape their products and marketing efforts accordingly. That doesn’t imply that you only create what is currently “hot” in the market. You can lead customers, but you can’t get out too far in front of them. This is particularly true for cross-border sales. You have to understand the needs of the customer in the other culture from their perspective. That requires special training and tools.
3. Be Frugal, Not Cheap
We are big fans of boot-strapping and lean startups. We do not see the need to spend money on fancy offices, furnishings or cute marketing gimmicks. The ideal company builds a product, creates in initial sales and then looks for financing (grants, debt or equity). In our view, accepting outside money too early can lead to the founders losing control of their organization. However, there are key expenses during the launch phase where you shouldn’t do it yourself or on the cheap (e.g. systems, legal/tax/accounting advice etc.)
4. Plan to Grow, Especially Globally
Like a master chess player, you have to think broadly and deeply. Many entrepreneurs, especially those coming from large corporate environments, focus narrowly. We have dealt with a number of intermediate size tech companies that planned only for the California or US market. They didn’t build flexibility into their systems so the company could cope with rapid growth. (That may be a reason that most startups fail in years three to seven). Moreover, the companies didn’t foresee that their product/service would have markets outside the US. When the opportunity arrived to grow internationally, they had to overhaul systems and duct-tape new procedures on to existing processes. It would have been far cheaper to spend extra hours at the beginning to map out expansion strategies.
5. Reach out for help, there is an ecosystem ready to support you.
It is tempting to keep your project in stealth mode and develop it on your own. That works on rare exceptions. For the vast majority of startups, you need outside expert advice in today’s complex business environment. That requires building networks, reaching out to peers and engaging experts. When you go cross-border, the need for such expertise grows exponentially. The good news is that if you reach out for help, you will find a whole ecosystem of experts, networks and organizations who are there to support your success.