Monday, December 14, 2015

Don't Fall for These 6 Deadly Myths of Startups

Image via Flickr by Side Wages
Some entrepreneurs forget that they need an innovative business model along with an innovative solution to have a successful startup. Inventors alone, or business gurus alone, generally fail. It really takes a complementary pair of founders to improve the odds. That’s why I say “two heads are better than one” in a startup. Consider the original founders of Apple and Microsoft as examples.

Michael E. Gerber memorialized this concept many years ago in his classic book E-Myth, which postulates that most startups are initiated by entrepreneurs with technical skills, rather than business skills, resulting in a high failure rate. Since both skills are required in equal amounts for success, the single founder failure rate today is reported to far exceed 50 percent.

As an angel investor, I certainly see continuing evidence that this phenomenon hasn’t changed much in the past couple of decades. Technologists, in particular, who spend most of their time working in the business, rather than on it, still harbor several myths that contribute to their frequent demise:
  1. "A great technology will lead a successful business." In fact, both customers and investors often avoid the perceived high risk of innovative technology pitches. Customers don’t like new learning curves or dealing with unstable solutions. Early adopters love new technologies, but mass market customers want solutions, not technology.

  2. "If we design a great product, investors will find us." Technologists forget that investors are buying a chunk of the business, not the product. Every solution needs a business team first who knows how to market, distribute and support the product. Investors want proof of a business model and real customer revenue, as well as a product.

  3. "Business work should start only after the product is done." Business experts recommend that entrepreneurs start their marketing first to confirm that they have real customer interest and an appealing product concept. In addition, good marketing and support plans can take as long as product development. Do both in parallel to be timely.

  4. "Marketing is a necessary evil to sell weak solutions." In today’s world of information overload, everyone relies on marketing and social media to find solutions to match their needs. Even the best technical solutions often fail due to lack of good marketing. For innovative solutions, marketing is the education consumers need in lieu of experience.

  5. "Paradigm-shift solutions have no competition." The real competition to a new paradigm is the old paradigm. The first airplane faced major competition from trains and automobiles. If there is no competition, investors see no market, meaning no customers, slow growth and big marketing costs. Mention paradigm shift only with other technologists.

  6. "Free solutions are the way to build critical mass quickly." For many customers, free implies no real brand value, so loyalty is low, and support costs can still be high. Thus you need deep pockets or generous investors before advertising or alternative revenue streams can kick in. Premium pricing with exclusivity is often a better business strategy.
Every investor looks first for an entrepreneurial perspective that includes understanding how the business must work, and then how the solution does work. The required business work encompasses the long-term people and process growth associated with marketing, sales, distribution and customer support, as well as product costs, support and follow-on plans.

The best entrepreneurial perspectives go well beyond the technology and making money, into an integrated vision of the world where satisfying a customer need leads to the greater good for the environment and society. They provide a personal legacy, satisfaction and happiness. The challenge is to maintain a balanced view between inside and outside business drivers.

Social media and the Internet are great channels to test your balance and overcome the myths and biases we all carry as startup founders. I recommend more time building the right team and the best business with the best solution will evolve naturally. Finally, make sure your investor story is as strong on the business elements as it is on the solution.

Marty Zwilling

*** First published on Entrepreneur.com on 12/02/2015 ***

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