That’s just the nature of the business. For every Facebook or Uber, there are thousands of fledgling companies and their ambitious founders whose failures you don’t read about. In fact, 75% of venture-backed startups in the United States end up failing, defined as being unable to return their investors’ capital.
The reason three-quarters of startups fail doesn’t have anything to do with their product, technical deficiencies, competition or anything like that. No, it goes way up higher, to the very origin of the startup itself:
Startup founders are ultimately what define and determine the success of that startup. I recently had the chance to listen to Jeff Fagnan, a General Partner at Atlas Venture who has seen more than his share of startup successes and failures, speak. He covered a wide range of topics but what most appealed to me was his first-hand decades-long experience of working with and vetting startup founders. Simply put, he has seen what works and what does not.
Here are 3 characteristics every startup founder must have to give themselves a chance at success, according to Jeff Fagnan.
Many startup founders think that the stroke-of-genius app idea that came to them in the shower just needs some technical coding behind it and some prettying up before millions of eager users will gladly pay to download it.
This is a pipe dream and a fool’s errand. Most startup founders don’t have the intellectual honesty to look themselves in the mirror and ask – really ask – if they have product-market fit. Does what they have work in the market? Will people actually want to use their product, to say nothing of paying to use it?
Many startup founders, especially in the early stages, exist and operate in a state of denial. They haven’t gone out in the market to talk to actual potential end users:
- What problems do they have?
- Why are they having these problems?
- Why could your product potentially solve their problem?
- What other elements about their problem at-hand are you not thinking about?
- How much would they be willing to pay for solutions to their problem?
Some startup founders won’t have the drive and hustle to go out and put in the rigorous legwork required of these type of interviews. Others might hear answers they were not expecting or that they don’t like and choose to ignore those, continuing to live in a state of denial and defiance. If you don’t have the intellectual honesty to shine a hot, bright spotlight on your product-market fit issues, you won’t be a successful startup founder. As HubSpot co-founder – and prominent startup investor – Dharmesh Shah recently said, “If you squint hard enough, every product will look like it fits.”
Make sure you’re not squinting too hard.
Remember Kodak? The photography company was once not just a technological powerhouse, but one of the world’s biggest brands – it held an insane 90% of the photographic film market share in 1976. After a precipitous decline through the 90s and the early aughts – blame the rise of digital everything – the company hardly registers a peep today. Ask any millennial about Kodak and you’ll likely be met with blank stares. The lesson here for startups and their founders?
Always keep your metabolism rate high.
And we’re not talking about what you eat, when you exercise or your weight. No, for startup founders, having a high metabolism means moving fast enough to the point where you’re not afraid to scrap something, even if it means starting all over again.
That’s what Kodak failed to understand or act upon. The reason their brand and market share plummeted so drastically was because they failed to adapt and adjust to the new digital world. Despite having their archaic rolls of film fading into extinction, Kodak was too slow to migrate to a market that demanded digital cameras.
According to Jeff, people and organizations will only change if there is enough pain. As an early-stage startup founder, you must have an even lower tolerance for such pain – there’s no time to wait until the pain is too much to bear before pivoting and adapting. This type of high metabolism and agile mindset is critical from day one.
From Jeff’s – and most VC’s – perspective, there is no quality or characteristic more important to have as a person and especially as a startup founder. If you don’t have the toughness and resilience to deal with the highs and inevitable lows of founding and running a startup, this is not the industry for you.
Every startup and founder has an “Oh crap!” moment of near-death and panic bordering on hysterics. There will be dark days filled with technical disasters, PR nightmares, angry customers and even angrier investors. Counting on an incoming round of funding only to see it fall apart can send any startup founder spiralling into depression. In these dark days, what can a startup founder do but be resilient?
When vetting potential startups and their founders to invest in, Jeff in particular wants to see the candidate demonstrate absolute resilience and conviction in what they are doing. If a startup founder doesn’t have the utmost belief in their product and company, they will be easily deterred by any sign of hardship or obstacle. That is not someone worth investing in.
Intellectual honesty, metabolism and resilience. These are the three essential characteristics that every startup founder should demonstrate in spades, without which Jeff Fagnan and Atlas Ventures – or any other VC, really – would not invest in. They are by no means guarantees of startup success, but you can be sure that successful startup founders are more likely to have these traits than the other 75% of founders who ultimately fail.