Anatomy of failureThe rise and fall of a promising startup
They had a brilliant idea that could have been translated into a great product, but that wasn't enough to keep their startup alive. So, what went wrong? By Nili Goldfein and Sigal Widman |
|
Once upon a time there were three talented entrepreneurs who identified a real problem, came up with a visionary software solution, founded a startup, assumed the roles of CEO, CTO and VP Product, raised the necessary capital, and began to develop their product and sell it to prospective customers. One of them - a large global conglomerate – required specific product modifications to meet their needs. Concluding that their marketing assumptions were off, the founders made the requested changes and hoped that their modified product would now appeal to a larger target audience and raise more capital.
The only problem was that the product changes relied solely on feedback from that one prospective client, without any further in-depth market research or strategic planning. The investors were furious with the VP Product's irresponsible decision and demanded he be replaced, and the CEO, who had excellent sales skills, stepped in and sealed the deal with the client.
But it soon became clear that the new modifications degraded the promising product to a mutation with specific features and solutions that nobody else needed. Without a product-market-fit, it was impossible to establish sales, and while the CEO was still able to 'sell the dream' to other customers, each signed 'dream' required more specific product adjustments. The development center couldn't keep up and collapsed, the CTO was sent home, and by the time the investors decided on replacing the CEO, the company was sold for a sad price.
Tips for a healthy transition:
A look at investments in Hi-tech companies in Israel and Silicon Valley shows that while Covid-19 hasn't changed the scope of investments in start-ups, their average capital investment and value assessments have declined. This means that startups will be facing a smaller margin of error and a shorter timeline to make the expected transition to a ripe and profitable organization.
While our talented trio made every possible business mistake in the book, these mistakes can be avoided by keeping the following principles in mind:
The only problem was that the product changes relied solely on feedback from that one prospective client, without any further in-depth market research or strategic planning. The investors were furious with the VP Product's irresponsible decision and demanded he be replaced, and the CEO, who had excellent sales skills, stepped in and sealed the deal with the client.
But it soon became clear that the new modifications degraded the promising product to a mutation with specific features and solutions that nobody else needed. Without a product-market-fit, it was impossible to establish sales, and while the CEO was still able to 'sell the dream' to other customers, each signed 'dream' required more specific product adjustments. The development center couldn't keep up and collapsed, the CTO was sent home, and by the time the investors decided on replacing the CEO, the company was sold for a sad price.
Tips for a healthy transition:
A look at investments in Hi-tech companies in Israel and Silicon Valley shows that while Covid-19 hasn't changed the scope of investments in start-ups, their average capital investment and value assessments have declined. This means that startups will be facing a smaller margin of error and a shorter timeline to make the expected transition to a ripe and profitable organization.
While our talented trio made every possible business mistake in the book, these mistakes can be avoided by keeping the following principles in mind:
- Define your Chicken and Egg:
Products don’t define customers; customers define products. All product development process should begin by asking who's the client, and what are his pains and needs. In-depth research and conversation with as many prospective customers as possible can help you correctly assess your product-market fit. - Keep it Simple and Sellable:
While founders sell dreams, sales managers sell real products. Make sure that any salesperson can easily pitch your product value in a clear and simple way.
- Respect Structure:
Entrepreneurs are naturally outside the box thinkers who don't care much for administration, regulation, and red tape. But creativity and innovation cannot replace organizational processes and support. Respect these structures and learn to work with them because your product won't survive without them. - Be Data-Driven:
Surprisingly, though today's world depends on data for better business results, many product development centers have no respect for data. Careful consideration of budget and time management data can make all the difference between success and failure, especially in face of today's short-term funding mode. - Avoid the Lord of the Rings Syndrome:
Like in Tolkien's immortal trilogy of a magic ring with destructive powers, many founders who assume the role of CEO, promise to step down when the time is right, but later, blinded by power, refuse to give up their seat. Knowing your limits, releasing the ring of power on time and finding a suitable replacement can help your company evolve to its next phase and avoid its self-destruction. - Build a strong team:
No one is capable of leading alone. Surround yourself with skilled, versatile, and experienced executives, and treat them not as performance contractors but as influential partners and leaders. - Give them Purpose:
While money and stock options are no longer enough to keep your talent onboard, a collective sense of caring and purpose will. Defining your product's Why with a larger social purpose and carefully wrapping it in great storytelling will result in added value for your startup and motivate your people to be at their best. Remember: in today's business world, a company's success depends on the greater good it can do, not on the egos of their talent.
Nili Goldfein - EVP Marketing & Business Development at www.nggconsult.com/NGG Global Consulting Solutions, specializing in Leadership and Management in a World of Disruption
