Do Startups fail?
Unfortunately this seems to be the case. Numerous research (like this from Bloomberg) states that 9/10 startups don´t make it to the 18th month.
There are hundreds of thousands of startups which we never heard of and we will never will.
Why so many startups fail?
There’s a number of reasons for it, as many as failed startups. Each one is different, but there’s something that I identify over and over in startups that struggle to grow: It is the lack of strategy. I’m not talking about startups whose strategies fail, but startups that discard strategy from the equation.
Maybe that’s because there are some myths regarding Strategy and startups, like discussed in this article, or maybe because they live so frenetically the present that they don’t think that there’s a future worth preparing.
Startups are being hooked up in the frenetic present as if there was no future.
Dear Entrepreneur: There’s a future, and you need to design it.
Of course, you might, think, they are startups who struggle for survival. Limited cashflow, living on investment rounds, struggling with competition… It could look like that planning the future is a luxury for them. But that’s the trap they end up in: They failure to envision the future keeps them sailing the present, in stead of accelerating it.
Startups need to shape the future, and this can only be done if they have a vision of where they are going, how they want to go and why they are going i the first place.
The three decision making levels
To explain why strategy could help much of these startups, let’s use a well know framework: the 3 levels of decision making that any company needs to do.
In any company (big, old, startup or sole trader) we need to make decisions in the:
- Strategic level: long term, how are we going to achieve the company vision. They affect on what markets are we competing, our competitor advantage, and they feed every decision in the company
- Tactical level: Specific engagement and actions like campaigns. they are our SEO, PPC, Social Media, Email, CRO, UX. etc… whether it’s agency or internal, every one has teams that perform different tactical functions in the organisation.
- Operational level: decisions on the day to day run the business, amercing our products, listening our clients, analysing, do this landing or the other, meetings, emails. etc…
Now, let’s compare how established companies and startups develop this framework.
They play big on the strategy level. Massive resources are located on the upper leves, from 3 day off-sites for the leadership to expensive strategy consultants that will analyse and decode the market for the company.
The strategy might be good, but as it spreads across the company into tactical levels, its impact fades away.
Tactics are understood as standalone independent areas (silos) and they don’t event purchase the same goals than the strategy. I. e. PPC manager just wants to lower the CPA, the SEO to get more traffic, Email to increase CTR and Social just to increase the Likes. And that’s how their performance is measured, regardless of the strategy, regardless of the company and even regardless of the industry.
Operational levels know nothing about the strategy and with time the impact that began promising turns out to be a great disappointment. This is the classic example of the JC Penney strategy failure.
Maybe some C level executive gets fired and the process starts over again with a new strategy that will change nothing. The company will continue business as usual and a new strategy will never make it low enough to be transformed in to actions.
Decision making In Startups
The balance of power across levels is upside down. The power is on the base.
Operation level decisions are the strength of the company. Startups “soldiers” are talented, quick, lean, fast moving and develop great solutions to specific problems. They rock the present and the everyday job developing the best product possible.
If the startup crosses the Chasm (see the new technology adaption curve), and they need to feed the growth engine, they bring on the marketing tactics lot: they start doing SEO, PPC, Email, etc… all fed with the same spirit used to create the product: test and learn.
And that’s where they fail.
Tactics are fed by the operational decisions, not strategic ones.
By having their marketing tactics rooted in the operations (I see that all the time) and lacking an overarching plan that focus their marketing activity these startups fail to understand that they need further direction, they need focus and clear goals.
This translates in a lack of vision, lack of focus and lack of a unique value proposition for the market and every startups ends up doing the same tactics (often with the same people), therefore they fail to differentiate themselves from the competition.
Why should I buy from you?
See as example these 3 startups with exactly the same value proposition for the user.
What differentiates one of the other? Why should we use one or the other?
This is the visualisation of the lack of strategy, the lack of a promise to our user, and the lack of the WHY.
To overcome this the Startup leadership needs to provide the team with a clear plan that they can develop, even if it’s to find out that the plan is wrong. If anyone out there can understand the value of failing fast it’s the startup.
Once the startup crosses the chasm needs strategy, and a clear vision, and this is not agains agility, learning constantly and testing.
Even if the main goal of the founder is to sell the whole thing and cash out, the company needs an strategy to detail how to get there.
Transforming a great product into a product is a challenge that requires vision, and leaders that are able to combine the frenetic everyday operational activity with the long term vision that shapes their future.