Almost a portion of startups fail within five years. Many are dying from the same avoidable mistakes that have been killing businesses for decades. In 2006, Paul Graham, co-founder of Y Combinator, wrote a tough essay explaining why startups fail. His observations came from watching many startups crash and burn.
Even though technology has changed dramatically since then, these fundamental pitfalls still destroy promising ventures today.
The main lesson is simple: create what users want. Get this right, and your startup will thrive despite making more mistakes. If you lose this purpose, you will fail, no matter what you do well. Graham’s framework shows the 18 tactics that founders sabotage their own success.
Graham warns that starting a company alone signals you couldn’t convince anyone else to join your mission. “It probably means the founder couldn’t talk any of their friends into starting the company with them,” he wrote. The most successful startups have multiple founders who support each other through the inevitable low points.
Silicon Valley dominates startup success, followed far behind by Boston and Seattle (at least at the time of writing). Graham noted that on popular startup sites, “the criteria are higher; other people sympathize more with what you do; the type of people you want to rent should live there; the supporting industries are there. » The right location gives founders huge benefits from day one.
Founders decide on difficult-to-understand markets in hopes of avoiding festivals. Graham explained that founders “think about big concepts but make the decision to pursue smaller ones because they seem safer. ” But he added: “If you do something smart, you’ll have a festival, so you might as well deal with it. ” » Avoiding festivals means avoiding smart concepts.
“Most of the programs we get are knockoffs of existing companies,” Graham said, speaking of Y Combinator applicants. But he’d rather you solve a challenge that affects you personally. Graham said, “Apple was born because Steve Wozniak was looking for a computer, Google because Larry and Sergey couldn’t locate things online. “His aberrant tale of good fortune could be closer to home.
Some founders stubbornly cling to their original vision. “Most successful startups end up doing something different from what they originally planned, so different that it doesn’t even look like the same company,” Graham wrote. Stay focused but flexible and change if necessary.
Non-technical founders have a hard time identifying programming talent. Graham observed that “entrepreneurs can’t know which programmers are smart. They don’t even have the opportunity to meet the most productive ones. “Get a second opinion before hiring a developer, from someone who knows the smart and bad code.
Your technical base can condemn you from day one. Graham cites PayPal’s near-death experience: “After its merger with (the latest edition of) platforms to scale, CEOs—a move Graham described as dodging a bullet—choose the platforms shown.
Most founders delay launching with endless excuses. “In fact, nothing is finished until it is published; You can see it through the rush of painting that goes into publishing something, no matter how finished you think it was,” Graham noted. Send fast, update later.
Although a slow launch kills more startups, rushing can destroy your reputation. Find the right balance. Graham urged the founders to “think about what you plan to do, to identify a core that is useful in its own right and that can be expanded across the project. ” You only have one chance to make a smart first impression. Start small but strong.
You can’t create the products other people need without deeply understanding them. “If you try to solve disorders you don’t understand, you will ruin yourself,” Graham wrote bluntly. Know your users or expect to fail.
Every unfunded startup faces a deadline: when the cash runs out. Graham compared this to runway: “How much runway do you have left? It’s a good metaphor because it reminds you that when the money runs out you’re going to be airborne or dead.” Take more than you think you’ll need, because everything takes longer than expected.
The classic money-burning mistake is overcontracting, which according to Graham “bites you twice: in addition to expanding your prices, it slows you down. ” Your advice? “Don’t do it if you can help it, pay other people fairly and not with a salary, only hire other people who write code or attract users. ” Keep prices low.
Large investment rounds lead to immediate growth. Graham warned that “once you take several million dollars of my money, time is up. ” Investor stress can lead to bad decisions and cause them to change course. Neither too much nor too little. The Goldilocks of investment.
Balance investor feedback without giving up control. Graham found that “investors have created disruption for even the most successful companies,” sapping energy from the product. Don’t forget about investors, but don’t let them take over your business. Trust your vision.
Build value before capturing it. Graham pointed to Google: “They made search work, then worried about how to make money from it.” A great product without revenue beats a weak product with perfect monetization.
Technical founders hate selling. “Almost all programmers prefer to spend their time writing code and let someone else do the confusing task of making money from it,” Graham observed. But users may not automatically locate you. It’s all sales, so earn more.
About 20% of YC startups lose their founders. “Most of the conflicts I’ve noticed between founders may have been avoided if they had been more careful about who they started their company with,” Graham said. Choose your partners wisely.
Many startups remain perpetual-looking projects. Graham found that “statistically, if you want to avoid failure, it would seem that the most important thing is to quit your day job. ” Dividing your attention means failure. Do everything possible.
There are many tactics to fail as a startup founder. But reading common killers will help you detect danger in time. Relentlessly focus on creating what users want. Choose your location, platform and teammates wisely. Get it temporarily but not recklessly. Raise adequate financing. Put users before revenue. Make your effort more productive.
The road is complicated but clear. Your startup can do it if you’re aware of those dangers. There’s a fine line between good luck and failure, but you know you have what it takes.
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