Three Ways to Survive as a Startup Beyond the First Three Years
We’ve all heard that 90 per cent of startups fail within the first three years for various reasons including lack of product-market fit, cash flow woes, forming and retaining a star team.
Here are some lessons that will help you not only survive but thrive and expand your business.
Build a lasting cofounding team
Congratulations, someone else trusts your vision enough to hop onboard. But that’s just the beginning, now comes the challenging part - maintaining founder relations for the grind ahead, which can be as challenging as a marriage.
Healthy founder relations is the bedrock of any successful startup. According to Harvard Business School professor Noam Wasserman, 65 per cent of startups fail due to cofounders’ conflicts. Given the countless possible points of contention, the last thing you want ever is the failure of cofounder relations.
Some tips on maintaining that relationship:
1. Have an open discussion about how decisions are made, the equity stake and the vesting schedule before forming the company.
2. Never delay these details which may seem like nitty-gritty or even take it as a lack of trust in each other, but rather it should be done as the bedrock of trust between co-founders. If you can’t trust your co-founders enough to discuss who gets what and does what up front that conversation will be ten times harder later.
3. Spend time working with each other before committing. Like any relationship, you need to spend time with each other to get familiar, find a fit in working styles, how to synergize your strengths and potential pitfalls to watch out for. Jumping in based on a few talks and paper qualifications can land you in a very unpleasant place – for the next few years.
4. Go in expecting to stay for the long haul. Everyone craves the explosive growth and pouring in of venture capital – that’s great, everyone is happy. Now discuss with your co-founders about what happens if that doesn’t happen. Always plan for the worst even while shooting for the stars, because things won’t go the way you envision – when the rubber hits the road, you want co-founders who can slog with you through the mud and not abandon ship at the first sign of hardship.
A vesting schedule is a must to reduce the risk of disruption and keep your cofounders committed, without which you might be either stuck with non-performing co-founders holding on to significant amounts of your shares.
5. Have regular check-ins and casual bonding. It’s easy for cofounders to get burnt out and lose drive. If unchecked, this sets your startup on a downward spiral. To avoid this, check in on their feelings, workload and challenge level weekly, and act on warning signs by speaking with the cofounder to understand challenges faced and discuss ways of resolving or alleviating them together.
Never let your cofounder feel like he is battling it out alone. Casual bonding over dinner and gaming works well. This extends to the rest of your team and most importantly yourself as well.
Ace your lead generation
Many entrepreneurs have a common misconception of working on the product first before hiring salespersons. In reality, one of your cofounders must be the full-time salesperson to generate revenue in the early stage. No startup can survive without revenue. Revenue translates into cash flow, the determinant of your burn rate and what ultimately attracts investors.
Prospecting will take the bulk of your time as you explore and try to identify which users are interested in you. As much as it is a numbers game, the key to success is playing the numbers game on the right target audience and that requires you to find the users who value what you offer enough to pay for it (even if your product is free to use).
Before embarking on lead generation, developing clear buyer persona(s) for an in-depth understanding of pain points, interests, aspirations and buying behaviors is crucial – or be prepared to flounder and have your attempts completely ignored or mistargeted.
A few cost-effective lead generation tips for new startups:
- Attend networking at events or conferences and mingling face-to-face is the best way for you to learn more about your customers
- Create high-quality content that is valuable for your target audience, share it with them and potentially gate select pieces for targeted and quality leads
- Join digital marketplaces to build awareness by showcasing your products and services and, in turn, drive high-quality leads to your website.
- Leverage both paid social media advertising and organic social advertising
- Remarketing – just because they didn’t bite the first time, just means they are more likely to bite the next time compared to the complete stranger to your product.
See Product-market Fit (PMF) as a Series of Stages
The lean startup approach consists of three stages – problem/solution fit, product/market fit and growth stage. At the first stage, you’ll create a MVP (minimum viable product) to test if the problem is solvable technically and establish if there’s true demand for your proposed solution.
The next stage of product/market fit (PMF) is the most important stage whereby you test your product on its reliability and experiment with business models till you find one that brings in recurring purchases.
Regardless of how tempting the notion of chasing the whole market appears, accept that you are resource-constrained. Instead, focus on one or two market segments where you have the highest probability of convincing buyers by outperforming alternatives in value significantly – at least by 10 times.
This doesn’t mean that you chase all opportunities in your chosen segment, but prioritize your leads based on ideal buyer persona(s) for that segment and there’s strong demonstrable value in adopting your solution.
Finally, turn into a production facility by developing a customer playbook that captures the selling situation for each ideal customer profile for that single segment, such as communication of value proposition and positioning against a specific competitor. Use the playbook when hiring and training new salespeople.
In essence, invest time in finding the right cofounders and building a lasting founding team. Do not hesitate to fire partners fast who have yet to become cofounders. Secondly, while you focus on conversion, do not lose sight of the importance of lead generation. Ensure you constantly expand lead generation through experimentation with different tactics and tools. Finally, focus and adjust your product-market fit even as you have acquired your first customers. Remember the ultimate goal is acquiring a substantial base of regular users for recurring revenue.