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Why Startups Fail: Founders are the Real Failure Risk

By: Joanna E. Starek

According to CB Insights, only 48% of seed-funded companies will raise another round. If a company secures more investment dollars, there is still no guarantee it will survive. What is happening? Contrary to popular opinion, it is often the fallibility of the founding team (and not the weakness of the original idea) that wreaks the most havoc. Here are four warning signs that you and your co-founders could be in trouble.

1. Failure to Resolve Key Differences of Opinion

While it is not unusual for co-founders to have different ideas on critical topics such as the go-to-market plan or the product vision, it is not a good sign when they fail to resolve those differences. Rather than leveraging differences of opinion to get to the best outcome, the founders butt heads, and a war of egos and personalities begins. Too much energy in the company goes to navigating unresolved conflict, and little goes to productivity. By the time the issues surface, time and money have been wasted, and emotional damage has severed bonds that were once aligned and optimistic.

Key Question: Are you creating a team of builders working toward the same vision? If not, stop, take time to align, and have the tough conversations.

2. Lack of Focus on Key Milestones

There is an axiom that states, “where your attention goes, energy flows.” With limited time and resources, it is critical that the founding team stay focused on the actions that will achieve major milestones. I remember one of the first founder-CEOs I met who was spinning off the rails. His team kept asking how he was going to define success three months from now. He kept talking about grandiose visions and everything he was going to accomplish. In the meantime, the team did their best to produce something, but it was misdirected. Lots of good intentions with poor planning and failure to execute often leads to an inability to complete your central task (which is to prove product/market fit). Establishing focus, working toward milestones, and adapting along the way are skills critical to success. 

Key Question: How do you define value? If you can’t define it, you won’t produce it.

3. Failure to Adapt

One of the hardest executive skills to learn is determining when to stay the course and when to pivot. When you are in an early-stage company, there will be a lot of adaptation and learning as you go. As a founding team, you should assume one thing: whatever you envisioned originally will change. Something will go wrong—the consumer will react in an unexpected way, or there will be a fatal flaw in your design. The reality is that missteps are expected and are a key element of sprinting and moving fast. Founders who stubbornly adhere to one way of doing things when every data point indicates otherwise are doomed to fail. This does not mean giving up your vision. It does mean that building a company is iterative. Like playing a video game, you learn as you go: learn, adapt, and move on.

Key Question: What is the market and the data telling you? What are you failing to observe?

4. Trusting the Wrong People

One other unfortunate truth in Silicon Valley is that not everyone has the best of intentions. There are frauds who speak the language and dress the part but who have actually never produced anything. The most benign people in this category are the wannapreneurs, those who want fame by association but don’t truly bring useful skills to the table. On the dark side, there are serial CEOs, CROs, CMOs, etc. who prey on the newbies who have good ideas. They jump from gig to gig and claim all sorts of success that they never really created. These folks can be hard to suss out because they talk a good game, but soon after you partner with them they create more spin than value. Nothing is delivered, yet their ego gets bigger, and they keep claiming success. Eventually, their energy is so toxic that the rest of the founders pick up on it, but it then takes massive energy to move them out and start over. By then, they have moved on to the next target.

Key Question: Do you feel mislead or manipulated? If so, something is off in the founder dynamic or with your first key hire. Don’t let it linger.

As you build your company, remember that people matter. New companies begin as great ideas, but it is people who bring them to life. The myth of the self-absorbed genius founder is overhyped. Many of those leaders excel in spite of their personality, not because of it. Stay committed to your vision, but make sure you find the right partners. Cultivate honesty and transparency, stay focused on what matters, manage your time wisely, and pivot when necessary.

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