How insights can save your startups from failing

Failure is not an option!?

But of course it is. With so many startups emerging on a daily basis, failure is almost guaranteed. When discussing business, you’re bound to hear how nine out of ten startups will fail. To be precise, the number is a little bit higher. The most accurate startup analysis to date is Startup Genome Report Extra on Premature Scaling.  Project conducted by Berkeley & Stanford faculty members, along with Steve Blank and 10 startup accelerators as contributors. Analyzing 3,200 high growth web startups, the numbers were loud and clear. Within 3 years, 92% of startups failed.

 

(c) source: gatech.edu
(c) source: gatech.edu

Of those startups that failed, over 70% of them were guilty of premature scaling. What is premature scaling exactly? Nathan Furr, the author of the book “Nail it then Scale It” defines it as: spending money beyond the essentials on growing the business (e.g., hiring sales personnel, expensive marketing, perfecting the product, leasing offices, etc.) before nailing the product/market fit”. In another study, starting in 2014, CB Insights begun parsing over 100 post-mortem essays from young founders about their company failures. Over 40% of them stated that failure was due to markets lack of need for their product. That sounds simple, if there’s no need for the product, there’s no profit. But many people don’t look at the data and base their business plan on wishful thinking.

There’s a multitude of ways you can manage your company by applying comprehensive data reports. But when it comes to decision making, people still tend to be in one of these two groups: people who trust their gut feeling and people that work of data and metrics.  Primary example people tend to use for intuition driven entrepreneurs is the late Steve Jobs. Apple’s launch of the iPad in 2010 spawned a new category of portable devices, in spite of no market demand and harsh criticism it received when it was first announced.  But intuition can get you so far. It would be ludicrous to think that Apple didn’t required metrics and statistics to examine the market.  You cannot hope your business will continue to grow and prosper on a gut feeling alone.

Ever since Eric Ries and Steve Blank popularized the Lean startup method, it became obvious that making product decisions using the customer feedback will steer your product in the right way. Knowing what drives your customers gives you the advantage of understanding their preferences and needs. Data is everything, companies are well aware of that and are willing to pay decent money for valuable insights. In fact, you can actually earn money by answering surveys.

But coming across copious amounts of data is not an easy task. Limited amounts of customers in the first year will not get you enough for the amounts of data you’ll need. First you should take a few basic steps. Realizing how many customers you’ll need for reaching relevance and calculating how much time and funds it will take to bring them in the fold should be your number one priority. When you think you need 50 targets, get a 100 of them if you can. This could take weeks, or even months, but it will make a foundation for your next year. A data-driven startup company gets results. Or you can go back to just using your instincts, they’re usually correct.

Right?

Matt Hendry

Matt Hendry

Staff reporter at Startup Dope
Matt Hendry, takes a keen interest in following tech startups and loves covering their travails, as they succeed. Matt, also loves photography, indie films and jazz.
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