5 False Positives Common To New Startups
Failure is the reality that all startup founders will have come to terms with. That’s why so many founders are so transparent about their experiences – these founders are even transparent as to why they failed miserably. Some of the most common mistakes that startups face are the numerous false positives that gave them hope at first, but in the end, lead to failure.
Founder really want you to succeed in your dream – because they understand you and they get your drive to thrive in your startup. With that in mind, here are the five most prevalent false positives for new startups.
1. Believing the Hype
“Entrepreneurs are frequently told not to drink their own Kool-Aid—which is to say, to remember that the stories they tell about how their products will save humanity are just that,” writes Max Chafkin, author of author of Design Crazy: Good Looks, Hot Tempers, and True Genius at Apple. “Privately, they are cautioned to focus on the small things; to make more money than they lose; to cut costs when needed; and, when necessary, to pivot to a more promising business. The caution seems especially important in a culture that increasingly celebrates startups, threatening to confuse their mythmaking with reality. ”
Chafkin goes on to describe the failure of Better Place, which manufactured an affordable electric car and had received almost $1 billion in funding, and how it’s founder and CEO Shai Agassi “made great Kool-Aid and then drank it all himself.”
One paper, everything seemed right. The U.S. was recovering from the 2008 economic crisis and clean tech was seen as the next big thing and offering a cheaper alternative to Tesla would interest customers who would want to invest in an electric car, but can’t afford to do so.
One of the many flaws that Agassi made was believing that people would purchase a car service that followed the same business model as a cellphone company – customers would be given hardware, a car, at a subsidized price, but the real money would be made by selling subscriptions to a network of charging spots. “Nobody loves their wireless carrier,” Gadi Amit, a Better Designer said. “They love their iPhone.”
Plenty of entrepreneurs have ingenious and innovative ideas. That doesn’t mean that customers will automatically support that idea. Before you get too far ahead of yourself, take the advice of Public Enemy and don’t believe the hype.
2. Only Relying on Customer Feedback
Steve Job infamously said, “It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.” While Jobs changed his tone later in life, and it is important to listen what your customers are saying so that you can adapt accordingly, there is some truth to what Jobs was saying.
For starters, research has found that “customers can be terrible at predicting their future intentions when asked via a survey or a similar form of feedback.” Furthermore, sometimes customers are just going to lie in their responses.
Case in point, Crystal Pepsi.
Test markets in Denver, Sacramento, Dallas, and Providence were positive enough that the Pepsi opted to move forward with putting bottles of clear soda on store shelves across the country. The product, obviously, didn’t stick and was a major embarrassment for the brand.
Customers definitely provide valuable feedback and insights. But, entrepreneurs must go beyond initial feedback and validate their ideas by sampling larger populations of actual buyers, making to certain to ensure that there is a market for your idea.
3. Far Off Projections
Let’s go back and revisit Better Place.
The biggest mishap that the company experienced was the far-off projections it made from how much to charge for each car to when it would arrive on the market.
For example, Better Place planned to sell its electric cars for $20,000 a pop. Ultimately, it would retail for $37,000 in Denmark, without the battery, and $37,000 in Israel.
“Agassi had assumed that the car would cost roughly half the price of a typical gasoline car and would have a range of at least 100 miles,” writes Chafkin. “Instead, batteries were delivered with a range of closer to 80 miles, and the terms with Renault meant he was selling an unsexy family car for about the same price as a nice sedan like the Mazda3 or the Toyota Corolla.”
It also cost more money to build the charging network than initially planned going from $500,000 per station to $2 million.
Whether the actual truth is found in under or over pricing the product or missing target dates, having too far-off projections can stop a startup dead in its tracks. Again, do your research so that you can crunch accurate figures and have a back-up when you experience a speed-bump.
4. Limiting the Amount of Competitors Out There (Or Underestimating Their Response)
Don’t kid yourself. There always competitors out there. Even if you’ve done your due diligence, there could be a similar produce or service in a different part of the world that you didn’t know existed. Or, there could be another startup working on the same idea as you. It is said that at any one time there are four people thinking the same thing and dreaming the same idea as you are. That does mean that you need to maintain an urgency about your dream.
But, always be aware of your competitors and ask yourself what you’re doing differently than they are.
If you know who your competitors are, never underestimate them.
That’s a lesson that Sir Richard Branson learned when Virgin entered the cola market and declared war on Coke and Pepsi.
“We weren’t quite prepared for the size or the ferocity of their response, which included a steep increase in their marketing budgets and pressure on distributors not to work with us. Had we known how they would react, we may well have taken a different approach. But the main reason Virgin Cola failed was we didn’t follow our own rules: at Virgin, we only enter industries when we think we can offer consumers something strikingly different, but there wasn’t really an opportunity to do that in the soft drinks sector. People were already getting a product that they liked, at a price they were happy to pay – Virgin Cola just wasn’t different enough.”
5. Hiring the Wrong People
Sometimes you recruit someone who at first appears to be the perfect candidate for your startup. They have the skills and personality that would make them fit perfectly within your company. But, once you start working with them on a daily basis, you realize the truth. They’re not the ideal candidate for which you were looking.
There are some people who excel at interviews and come across as extremely personable. There are others who research the company or founders so that they can pretend to fit into the company’s culture. Or, maybe you aren’t as experienced in hiring and recruiting as you thought. Regardless, it’s not uncommon for startup to hire the wrong people.
Work on your interviewing skills so that you can read their body language and read behind the lines. Contact their references and ask questions about their behavior and work ethic. It also wouldn’t hurt to give new hires a trial period. Usually a 7 to 10 days is enough to find out who this individual really is. A new trend is leaning toward a three month trial period.