We examine how to avoid pitfalls in startup formation and operation.

1. How to Start Your Startup
Got Startup Meetup May 28, 2015

2. Why Startups Fail
• Most startups fail
• Within 3 years, 92% of startups fail
• Of failed startups, 74% failed due to
premature scaling
Startup Genome Report

3. Some Startup Failure is Avoidable
“Startups die in many ways, but in the past couple of years
I’ve noticed that the most common cause of death is what I
call ‘Startup Suicide’, a phenomenon in which a startup’s
founders and its management kill the company while it’s
still very much breathing.”
Justin Kan

4. Top Reasons for Startup
Failure
Why startups fail,
according to their
Founders,
Erin Griffith,
Fortune, 9/25/14

5. # 1 Product/Market Fit
• 42% of failed startups cite to lack of market demand for their
product or service
• Need to achieve product/market fit

6. # 2 – Running out of Money
• Inadequate funding is a frequent source of failure
• Cash flow management is key

7. #3 – Not the Right Team
• Inadequate management team
• Poor leadership
• Poor team dynamics
• Poor hiring/firing practices

8. #4 – Poor Product Strategy
• Improperly positioning the product
• Mispricing the product
• Poor quality control
• Poor cost control
• Poor timing of product release

9. #5 – Loss of Focus
• Poor marketing
• Inadequate attention to sales
• Inadequate attention to customers after sale

10. Successful Startups Realize
• That the business model is the product
• That product failure is part of the startup process
• That product pivoting may be required
• The goal is to quickly achieve a product/market fit
• People are important
• That teamwork and focus
• That customer attention
• Cash flow is critical
• Funding
• Sales

11. The Business Model is the
Product
• “If you Build It, They Will Come” only works in
the movies
• Webvan – grocery delivery
• Went public in 1999 with a valuation of $4.8B
• Went bankrupt in 2001

12. Fail often, fail fast
• Push ahead with a product as soon as possible to gather
feedback and learn about opportunities
• The Minimum Viable Product (MVP) may be used to test
product viability
• Quickly discard products that don’t have a good reception
(e.g. 40% say “they must have it”)

13. Product Pivoting
• Don’t be wedded to a particular product
• If a product doesn’t have traction, try again
• To pivot you must have learned something from
your previous failure

14. Product/Market Fit is the Foundation

15. People Are Important
• Managers
• All key roles filled
• Not too many, not too few
• CEO, CFO, CTO are key for a tech startup
• Employees
• Right fit
• Hire slow, fire fast
• Customers
• Customer support
• Customer feedback

16. Cash Flow Pitfalls
• Not documenting your cash-flow projections
• Being on budget but out of cash
• Being profitable but broke
• Seasonal sale fluctuations
• Unanticipated expenses & emergencies
• New businesses aren’t given much credit
• Sales volumes don’t keep up with marketing expenses
• Slow Accounts Receivable
• Growing too fast
• Withheld funds by missing banker/investor milestones

17. “What We Learned”
• Biggest risk: making something no on wants
• Not launching is painful, but not learning is fatal
• Put something in user’s hands and get real
feedback ASAP
• Know where your target audience hangs out &
speak with them in an authentic way
Drew Houston, CEO Dropbox

18. Key Points
• Develop a business model, not a business plan
• Fast learning loops: build-measure-learn
• Business model validation – get out of the
building!
• MVP – it’s not what you think
• The Lean Startup Path

19. The Lean Startup
• Method for developing businesses and
products
• Steve Blank in mid-1990 created the
“Customer Development” methodology
• Eric Reis (a student of Blank) popularized
the Lean Startup movement in 2011 as a
technique for “Validated Learning”

20. The Business Model Canvas

21. Another Representation

22. Three tips for success
1) Realize that your business method is the
product
2) People are an essential ingredient for a
successful company
3) Cash flow is king