Why Startups Fail – a Matter of Process?

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Mark Dabbs

27 Dec 2016 - 5 min read

Back in 2012, Andrew Chen wrote Mobile app startups are failing like it’s 1999. That was a special year in the era of irrational exuberance.

To reiterate Andrew’s original notes, launching a startup in 1999 meant raising lots of money, spending 9 months in development and then launching with massive PR. Frequently failing as a startup to get a product/market fit, companies relaunched repeatedly until they ran out of money or got lucky.

The intervening decade taught us how to code and iterate faster. It brought us more marketing tools to play with and propelled us into the world of Global Mobile. With the rise of the App Store much revelry ensued in being able to buy mobile app installs… until developers ran out of money or got lucky.

Andrew’s article served as a reality check, functionally underscoring that our market has become much better equipped to engage insanity faster. Per VisionMobile’s Q3, 2015 State of the Developer Nation, up to 72% of app developers were struggling to break even. There are also indications that as many as 90% of startups fail within five years, segue to acqui-hire or join the ranks of the walking dead, according to Business Insider and Forbes. The questions Andrew asked in 2012 are still relevant today.

  • How can we stop the madness (of predestined failure)?
  • What can do we do to combine the agility we learned in the past decade with the requirements of the App Store?

Why startups fail?

One of his cautionary notes warns startups and developers from blowing through half their funds to reach a version 1.0. That is part of the equation. The reasons why startups fail are consistent enough across most ventures – software, mobile apps, startups in general. Leading the pack are products and services people don’t want. That’s closely followed by startups and mobile apps trying to scale up too fast. These reasons persist not for a lack of tools, but for faults in the old standard launch process.

Road Rage – Here’s the Map.

When the tools, techniques or even the platform don’t deliver the results we want, we need to look at the process. Let’s take a moment to map out these launch processes – for 1999, 2012 and the one starting to prevail today – Minimum Viable Product methodology as it has become popular through crowdfunding.

ScaleMarket fit?IterateSuccess or failure?
FundingScaleMarket fit?IterateSuccess or failure?
Market fit?DevelopIterateSuccess or failure?FundingIterateScaleFunding

Wisdom of the Mob Crowd

The Minimum Viable Product (MVP) approach best characterizes what worked best in 2016. The process dramatically reduces the cost of failure, early on. At the same time, MVP provides a feedback loop to focus on what does work. It addresses two super-critical issues almost immediately. Do people like it? Will they pay for it?

More than this, the understanding of MVP philosophy radically redefines what a launch means and entails – affording the potential to make money on an idea almost from the get-go. The process seeks to find product/market fit before significant effort and money is poured into development. When development does begin, it focuses on what customers want to make it better.

If a product/market fit is not found early on, there’s no great loss but still much gained in the form of customer feedback. This can be used for reevaluating the project, or to conclude it is not viable before taking on a major financial commitment. If there is a fit, it means there is money coming in which can reduce subsequent funding requirements. Moreover, when you already do have paying customers, it is easier to attract funding.

The core difference really is that an MVP does not presume an idea is great until people prove it with money. Moreover, it places a heavy emphasis on iterating – developing and refining based on customer feedback, not what the founder thinks. Finally, the process does not seek to scale up until the product has proven itself.

Ignore all above if you’re Elon Musk.

Also, Elon, if that’s you, please get back to work, we need a Reinvently office on Mars!

Same as it Ever Was?

Functionally, this brings us back to how most businesses developed and launched long before the internet became a fad. The modern equity business didn’t really begin until about 1946 and only began to resemble what we know as venture capital around 1981. In these prehistoric times, investors wanted to see something tangible – a prototype and preferably one backed by a patent. Or they wanted to see a business with some history backed by a profitable balance sheet.

Just like it is easier to get a personal loan if you have a job and steady income, so it was with business loans and investors. It’s always been that way and likely always will, but…

Intermittent Irrational Exuberance

Today, we have many more examples of what works for the Internet than we did in 1999. We have many more examples of what works for Mobile than we did in 2012. But, every time a new technology emerges (AR, VR, AI, Nanotech, Space Flight, etc.), developers and investors are prone to be more speculative and willing to take greater risks.

There are always exceptions to the rule. That doesn’t mean they always work. There are occasions when partying like it’s 1999 could be the sane thing to do. Even so, the MVP approach provides considerable insight into that, too, by working with early adopters first.

Finally, a Method to Embrace the Madness!

It’s our goal to do things faster, better and cheaper. It has even led to a sort of mantra, “Fail fast and frequently.” At face value, that’s completely insane. The cost of startup failure is what hurts the most. The Minimum Viable Product approach expands that mantra to, “Fail faster and cheaper with more feedback.” If the feedback pays for itself many times over, why not?

We (the world) are where we are because we have been willing to invest billions of dollars into ideas.

A lot of those ideas didn’t work very well, but that leaves all of those that did. Imagine the possibilities when we are no longer afraid of the price of failure.

What then..?

There's a Better Way to Manage Your Mobile Business

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