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I started my first company back in 2010. Since then, I've had the chance to meet brilliant entrepreneurs with fantastic businesses in their hands.
9 out of 10 startups fail; that's just the hard truth. The most common reasons, according to founders themselves, are:
This connects directly to the five startup myths we are looking in this article. Let's do it.
This is 99% false. You need traction to raise money. Traction in the form of revenue, ideally, or at least traction in the way of users.
The notion that you can raise capital to build the first version of your product, or to recruit the team is really, not the way things work these days.
The startup press paints a very different picture on the stage and the requirements for companies to get funding. One of our previous mentors at 500 Startups, Elizabeth Yin, has a fantastic blog on the VC perspective of the startup fundraising model. Take a look.
Yeah, no. I'm not the highest-paid employee in the company. If you look at it hourly, I'm not even in the top 3.
As a business co-founder, you are not only the guy in charge but probably one of the biggest shareholders. (Check out our video on Startup CEO Responsibilities) Share value is your motivation, not salary. Even if your company is not public, the increasing value of those shares and your ability to sell them at an acquisition event.
Aaah, this is a classic. All you read about is scale, scale, scale. Growth. SaaS Growth Ratio. You need growth!!
That's all great as long as you have money in the bank, and new investors are continuing to fund your operation. For the most part, if your company is growing fast, you will be able to raise more funding. 'Fast' has different definitions depending on the industry, but you are probably looking at tripling or quadrupling your revenue YoY.
But, what happens if you are growing at, say, 50% YoY. That's not going to get investors excited and probably won't get you that Series A or Series B funding. So what to do, well, two paths:
A) Keep going full steam ahead until you win, or you die.
B) Take a step back and get your company to a profitable state.
If you notice how familiar I am with, this is because I am speaking from experience; we were in this same situation back in 2017. We made a video about it too.
The point is, the purpose of a company is to make money. Slow growth is better than dead.
A challenge many startups comes when they've raised too much money. In that case, the pressure from investors to get an ROI on their capital might put you in a tight spot. In our case, our switch into profitability, while it slowed down our growth, has given us a quite unique position of choosing whether we want to raise capital or not.
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I remember discussing acquisition clauses with our investors during round negotiations. More than often some of them have come to us saying, we should look to sell the company.
That's not something you can do. The best insight I've heard on the matter was on the Startup Therapy podcast, by the guys at startups.com- They do a deep dive into the circumstances that need to line up for a company to decide to acquire another.
As a founder, you can't operate for an acquisition. You need to run your business period. Too many variables need to line up for a purchase to happen, and you don't have control over any of them.
I've been on a couple of meetings with large companies that could buy Slidebean out, and have the word 'acquisition' thrown around. It has not happened, and I've learned not to be distracted by it. The best you can do to increase your chances of selling the company is growing the company; which is what you should be doing anyway.
[Insert name here] for any role model startup founder. All of us need to be growing our companies, which means getting customers and or talking to investors. For both of those, the company needs to project success- which makes it really hard to talk about struggles, issues, or burnout. Projecting any frustration can hurt the company itself, so you end up 'faking it until you make it.'
When my first company went out of business, we delayed the announcement for months, until I could get back on my feet with a new business. We, founders, all know this, and only expose these vulnerabilities in close circles, often with other founders who also understand that frustration.
When we talk about past failures at Slidebean, we always acknowledge what we did wrong, but focus on our solution and how we overcame the issue. Talking about a problem that doesn't have an answer yet, is something you'll rarely come across in the open.