According to surveys, around 90% of startups fail, 70% between years two and five.
Post-mortem reviews show that most of them cannot find a viable market for their product or have a mistimed or misdirected marketing strategy. Clearly, starting a business and making it stick is not an easy proposition.
The ones that find their offer in demand, and manage to reach their customers, clearly have the potential to grow into sustainable businesses. And yet, many still are in danger of hitting financial or logistical constraints due to immature operations. These startups can reach past their growing pains and flourish with the right expertise and support.
According to Growth Institute, there are 10 main reasons for failures in startup growth:
- Scaling up too fast
- Lack of focus and alignment
- Hiring prematurely
- Mistaking leadership for management
- Not setting long-term goals
- Focusing on marketing too little or too late
- Postponing the next-round funding too long
- Lacking a scalable infrastructure
- Not being agile
In our experience, all of these factors are, in fact, symptoms of poorly designed or inadequately embedded business processes. Poor business processes, in turn, have three primary root causes:
Opaque decision making
Decision flow in a closely-knit group of passion-driven entrepreneurs differs from the decision flow of mature organizations. While some startups try to deal with this by increasing the number of meetings, so everyone knows everything, this almost always proves to worsen the problem, diverting energy from business goals.
Lack of the proper data support
Management of data produced and used by a handful of employees differs from data governance required to ensure findability, accessibility, interoperability, and reusability of diverse data assets. While dropping all excels and powerpoints into a cloud drive could be a short-term fix, it is clearly not a sustainable strategy.
Insufficient management of associated risks
Risk management of a personal budget (even in the form of a micro-company capital) differs from risk management of a growing and hiring organization. Leaving all decision-making to the CEO can overburden even the most resilient person, while delegating risk management inappropriately can lead to disasters.
Statistically, startups have around two years between funding rounds.
That's the timeline to improve the product and change the model of operations. CEOs, CTOs, and CFOs, who successfully developed their products or services, and engaged the market, need to ensure their approach and attitude are replicated by whole departments. As organizations grow, tight control by the founders is not a sustainable strategy.