♫ She take my money when I’m in need, Yeah, she’s a triflin’ friend indeed! ♫
A recent CB Insights survey of 368 start up failures from 2000 to 2020 concluded that most startups fail… wait for it… because they run out of cash!
We can all agree that building an early stage tech company is difficult. The challenges are easily demonstrated by the overall failure rate (c. 90%). But failure rates sighted based on running out of cash suggest that the entity somehow spent the funds independently.
Below are two perspectives on the topic of why startups fail or build efficiently that certainly challenge the ‘running out of cash’ perspective.
1. Harj Taggar (Partner at Y Combinator) suggests the failure cycle for startups looks like this:
- Nobody listened to the customers
- A product was built that was not needed or not good enough
- There were insufficient paying customers
- The company could not raise capital or debt
- The company ran out of money, Founders ran out of energy
- The Founders gave up
2. Eric Reis wrote ‘The Lean Startup’ 10 years ago. Here are the headlines:
- A lean startup is the process of developing a product or company based on the expressed desires of the market.
- The lean startup uses validated learning, which is a process by which companies assess consumer interest.
- Lean startup standards will involve the release of a small form or early concept products in order to assess the customer reaction to the product.
Lean Startup or ‘How to Make Sure Your Startup is Not a Gold Digger?’ Does Eric know Kanye???
The best startups we meet on a weekly basis at Nicholas Brinley Capital are insanely focused on their customers and spend what most people consider a disproportionate amount of time listening. They give the paying customers exactly what they need, so that the operating pattern of the business starts to look like this:
- Listen and engage with the customers intently
- Build a product that the customers love
- Customers pay a good price for the product they love
- VCs invest because they see paying customer traction
- The company starts to generate revenue
- The Founders create a successful enterprise
Yes, there may be other factors, but most often customer-centric founders give the customer exactly the product they want and never to have to suffer at the hands of Gold Digger LLC.
♫ Oh she’s a Gold Digger way over town that digs on me. ♫