Want to hear something depressing? Back in 2012, there were over 500,000 new businesses founded, but nearly 75% of those have failed or will fail in the future. Even fewer will go on to experience the level of success seen by startups like Facebook, Dropbox and AirBNB.
That’s a pretty sobering statistic, but it doesn’t have to be the story of your company. There are plenty of different ways you can improve your odds of success – many of which simply involve patience and foresight.
Here are five lesson you need to know to build a successful startup:
Lesson #1 – Put Together the Right Founding Team
One of the leading causes of startup failure is the inability of founders to put the right team together. Your founding team will decide the success or failure of your business, so it’s important to be sure you have strong team dynamics and skill sets that complement each other.
Plenty of businesses fail because the founding team simply doesn’t get along, or because they have conflicting goals for the company.
A great founding team will have everyone being the expert in their section of the company, with no two people vying for the same position of leadership or expertise.
In addition, when putting together your founding team, be sure to define clear roles and revenue sharing expectations at the outset. Make sure everyone knows what is expected in their position and what the reward will be.
Although it might be uncomfortable to have these conversations, it’s also important to define the consequences if someone doesn’t follow through. Startups can’t afford to carry anyone who’s dead weight.
Here is a great resource on how to build a great team.
Lesson #2 – Narrow Down to a Winnable Market
Another huge issue I see in the startup community today is the mistake of trying to enter a very large market. The thinking goes that, even if a startup can’t capture very much market share, 1% of a very large market is still a sizable revenue stream.
Unfortunately, vast markets are incredibly competitive, as Peter Thiel points out, making it nearly impossible to gain even this small foothold.
Instead, it’s much better to start with a smaller, more winnable market and then expand from there.
Think about how Facebook started. Initially, the social network was able to sign up 60% of the 10,000-student Harvard market in a matter of days, proving the viability of the concept. Over time, the company was able to grow into the vast market of worldwide internet users, but they only did so by starting with a single, small, winnable market.
Lesson #3 – Decide on a Financing Strategy
Contrary to popular opinion, you don’t need millions of dollars in venture capital to build a successful business. In fact, some entrepreneurs find that by “bootstrapping” or securing needed capital from among their team, they’re able to run a more efficient and effective company without losing ownership equity.
If you do decide on seeking investors, be as careful about your investment partners as you were about your founding team.
These people will be with you for a long time, and you’ll be accountable to them for your results. An investor with deep pockets who doesn’t like your vision or direction can make your life miserable, even if they do give you lots of money to pursue your startup dreams.
Lesson #4 – Don’t Waste Money
Say that viagra sans ordonnance you do decide to pursue venture capital (or that you’ve got extremely generous friends or relatives supporting your project)… Just because you have money doesn’t mean you should spend it!
One problem many startups run into is that they burn their money in useless ways, rather than carefully rationing their startup capital. As an example, you shouldn’t buy expensive office space or furniture in the early stages of your business.
You simply don’t need it! Expensive paid subscriptions, first class travel, and the overuse of traditional printing are other costs you’ll want to forgo as well until your revenue stream supports them.
There are, of course, legitimate costs that require startups to spend money – even significant amounts of money.
However, those are far fewer than you might think. By conserving money and spending carefully – just as you would with your personal budget – you’ll prolong the amount of time you have to start creating a profit with your company.
Lesson #5 – Wait to Scale
Many founders dream of running a large company, but nothing kills a startup faster than premature scaling. Founders often scale prematurely because of their unwavering belief in the success and viability of their company. This courage and optimism is essential to any entrepreneurial effort, but left unchecked, it can cause you to take on unnecessary risks and expenses that will ultimately sink your effort.
Of course, there will be a time to scale as your business succeeds. However, it’s important to make sure your business has nailed its product-market fit and is generating positive revenue before you begin investing in growth.
Growing your team doesn’t automatically lead to an increase in revenue, and as you’ll find, the expense and time investment required for hiring is significant.
Starting a business requires vision, innovation, courage and determination – but these traits alone aren’t enough to guarantee success. Creating a company that will succeed over time also requires patience and wisdom.
Do you have another piece of advice you’d give to new founders? Share your suggestions below in the comments!