Avoid These 3 Overconfidence Traps to Succeed Where Many Startups Have Failed

Overconfidence could be the death of your startup. So, keep the problem you're solving (not its solution) at the heart of your company.

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By Trevor Foster • Oct 10, 2018 Originally published Oct 10, 2018

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If you're laying the groundwork for a startup, it's no surprise that the odds for success are often against you. A 2018 study by CB Insights unveiled a common culprit when it reported that 42 percent of the failed startups surveyed had cited "no market need" as the reason they closed shop.

You have to wonder how that could possibly happen. How do smart people get together to build a business and forget to make sure people will buy the product? That scenario reminds me of a classic symptom of entrepreneurial overconfidence: an elegant solution desperately in search of a problem.

Related: 8 Startups That Are Making Waves by Solving Big Problems

Instead, to truly thrive, successful founders will keep their would-be customers' problems top of mind at every step and avoid falling in love with their own solution.

Startups that miss market expectations tend to source their ideas from the wrong places. After all, startups can't generate problems to solve on their own; they must consider their prospective customers' wants and needs. That doesn't mean asking those individuals about the solutions they envision, or soliciting the outside solutions which so often stifle innovation.

Instead, new and growing companies should ask their markets about their problems and then come up with new solutions based on their findings.

For example, Agentology, a lead response and follow-up platform for real estate agents, found that real estate agents are great at selling houses but less skilled at handling online leads. So, instead of asking agents how to solve that problem, Agentology built an entirely new technology platform as a solution.

This way, the company avoided fighting a crowded market for relevance; now, it owns a solution that connects buyers to agents in a way that's easy for agents to manage.

This concept of problem over product remains consistent in every industry. But the process is far from perfect. When startup founders fall in love with their solutions, they tend to overlook the flaws in their plans that could kill their businesses. To disrupt markets and build sustainable success, those founders need to check their egos at the door and evaluate each strategy with a more self-critical eye.

Here are the three mistakes to avoid so that overconfidence won't kill your startup.

1. Misunderstanding the buyer's status quo

Before rattling off potential ideas, first understand who the customers are. Steve Blank's theories on customer development and Eric Ries's The Lean Startup explain the fundamentals of growth, but caution that founders must start even earlier than "the fundamentals" to ensure that they don't make important decisions based on assumptions.

Think about how customers might transition from the existing solution to your proposed solution.The CB Insights study found that 17 percent of failed startups cited user-unfriendly products as their nemesis. If customers can't consume your new solution over time at volume, it won't stick well enough to generate consistent revenue.

Use Blank's model to understand how to "get out of the building," and then follow Ries's model to run small tests to validate (or not) your assumptions in the process. Next, look at how the potential customer adopts new tech, and then find out how users handle change management in this vertical. In all, the adoption journey dictates the important time variables (e.g., time to adopt and time to educate the market) that determine success.

Related: What's the Secret to Startup Success? Timing.

2. Competing on too many levels

Feature-rich products that ignore the current solution chain generate a ton of buzz before they fail, but they fail all the same. Young companies that lose focus as they design solutions end up trying to innovate new products at every turn. Instead of changing the world, these startups typically end up confusing their would-be customers until they turn away.

Although it might seem counterintuitive, don't try to shake up your industry; just pick one part of a complex solution, and disrupt it with extreme focus. CB Insights' study also found that 13 percent of failed startups went down because they couldn't focus on what was most important. Keep in mind that buyers don't want to take multiple risks at once -- they want to use products that are easy to adopt.

Solve this issue by building a complete understanding of the current solution first. Then, identify where the company could add the most value (and where the market has an appropriate appetite for risk); then fit your disruption into the existing solution chain. This way, your startup can leverage existing players as allies instead of competitors and present a simpler proposition to buyers.

None of this means that your startup can't go big with a new solution. Just be honest about the true value of the offer, and don't be afraid to start with a smaller version of the business model. Get to market, earn revenue and create value quickly. Then, reframe the solution feature by feature as needed.

Related: Staying in Your Lane: Why Startups Must Stay Focused

3. Falling in love with your solution

Startups succeed because they understand problems, not because they create solutions. Don't piece together an elegant remedy only to find later that there's no market for the product. Avoid this by starting with the market, and then keep the needs of that market in mind as the solution evolves.

Flexible development processes are the most sustainable. However, products and services that work well sometimes uncouple from value creation. For instance, the now-shuttered AOptix Technologies was once on the rise, obtaining more than $100 million in funding for its free-space optics technology, meant to be an alternative to fiber-optic broadband cables. Despite the company's potential to disrupt communications infrastructure, however, it was too focused on its innovative product to take note of consumers' pain points.

Ultimately, AOptix's demise occurred thanks to sticker shock -- it charged up to $80,000 per link-up. While consumers were interested in the new product, the startup missed the mark on price and installation expectations, failing to pivot away from existing solutions and eventually losing market share to more attentive competitors.

Visionary founders arent' special because they found the perfect solution. On the contrary, the most capable ones keep their focus squarely on the customer and the market. The right solution might manifest in different ways as market needs change. To be "visionary" really means to balance extreme certainty on a few key components of the future, and extreme flexibility on all others.

Be systematic about the product development process, and allow your solution to take shape over time. After all, the time line comes from your customer, not your product road map.

Take pride in the leadership of product management in the early days, and then build solutions against specific use cases that keep the problem in need of solving at the forefront. When you release the product, step back to evaluate its progress and iterate as needed.

Finally, keep the problem (not the solution itself) at the heart of your company to avoid succumbing to the overconfidence trap.

Trevor Foster

Co-Founder and CEO, Fulcrum

Trevor Foster is co-founder and CEO of Fulcrum, the San Diego-based talent cloud platform powering the future of work for the world's largest companies.

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