Living the Startup Life

85% of businesses fail within 3 years.

Out of 10 businesses that VC’s fund, 8 will fail, 1 will be a small success, and 1 will the the ONE big successes that generates the big money for investors.

There is so much failure going around that an entrepreneur can easily be discouraged to leave the shelter of his or her comfortable corporate life.  I was at the Startup Camp in San Francisco this weekend when it hit me: “I think I now understand one of the most compelling reasons that most businesses fail.”  (I’m not saying that I know the whole enchilada, but this is definitely one of the pieces to the puzzle)

Most people just never have a chance

What do I mean by this?  Lets dive in and see what I experienced with my very own eyes at the startup camp.

At Startup Camp, entrepreneurs were given the chance to pitch their idea to their peers and have their company voted to be the best startup company.  The winner got a new $4000 computer!  Yu-kai and I were going to compete, but like a bunch of lamos, we signed up after all the spaces had been filled up.  Anyways, Yu-kai and I sat down to listen to the 21 companies pitch their ideas.  We only made it to pitch #5.

I don’t want to be a mean person nor do I want to bash anyone’s ides.  After all, entrepreneurship is about hearing everyone tell you that your idea sucks and you do it anyways.  However, these companies DO NOT have the slightest chance of succeeding.  I say this because the idea itself is fundamentally wrong and the team is of low quality.

Here are some ridiculous things that people said during their pitch:

“We only need 1% of the market”

(A guy was reading off of note cards)

“We will beat Google, Yahoo, and MSN and become the number one search site”

“You all have one thing in common, you all want to change the world”

Question: “Are you planning to build an online community?”

Answer: “What’s an online community?”

One of the things I learned is to avoid using absolute statements.  There was a person talking about how Spam is the number one pain for people and their email.  After he said that I thought to myself, “Spam isn’t a problem for me, I have Gmail.”

More importantly, you need to find and focus on a significant pain.  “Spam” is not a big pain for me nor is “Searching for things on the internet.”  Google already has those two things covered perfectly.

What are some of the most ridiculous things that you have heard during a pitch?

Startups are tough. It can be a tough and lonely road where you will work 100+ hours a week, and see no initial movement in your business. Few companies make it to the point where the company finally starts running on its own, and subsequently, the company starts running you. My business partner Yu-kai Chou and I call this point the “point of no return (PONR).” Up until the PONR, you are the sole driver of your company. If you stop working, then your company doesn’t advance, and you don’t eat. However, after the PONR, even if you stop working, the company will continue advancing and the work will continue to pile up. You are no longer the main driver of the company because it is pretty much on cruise control and hopefully headed in the right direction. Just because the company is moving, it doesn’t mean that it is moving efficiently or to the place it should be moving to.

This is the second point where most startups fail. There is so much work after the PONR that the business owner is completely overwhelmed and doesn’t know what to do. He puts in more and more hours but the work never ends and he eventually burns out. So how can you ensure that you are prepared for the PONR?

1. Create systems

You should not be working on the day-to-day activities of your company; instead, you should be working ON your company’s overall strategy, direction, and management. Each area of your company - tech, finance, operation, marketing - should have a system that works on its own. The system should be efficient and easy to understand so that a new employee could easily pick up the system and work in that area of the company.

Don’t wait till the PONR to start creating your systems. If you have not created your systems before you’ve hit the PONR, then it is probably too late because it will take a tremendous amount of time and money to create systems for your company. Start to create systems as soon as you start your company. Even if you’re the only employee, make sure that there are systems to the way everything is run and make sure to document the systems so that your first team member will understand how to run the systems.

2. Empower your team

A startup company has very little capital. How on earth can you gather a team of people who will be passionate about your company and work for you for free? The key is to empower the members of your team and to choose your team members very very carefully. You need to hire people who are self-starters, and like to work in open ended, creative environments. You need people who do not need their hands held in order to accomplish an assignment.

What I mean by “empowering your team members” is that you give them the opportunity to accomplish their goals in the their own way. If they feel that they own a piece of the project and company, then they will feel passionate about it and work extra hard to achieve their goal. Empower your team members by giving them big responsibilities and giving them free-reign on how they will accomplish their goals. In essence, you set the finish line; they choose their path.

What other ways have you found effective in empowering your team?