Consoling Lies about Start-up Failures
What the vast majority won’t tell you about
Every start-up founder aspires to build a business that will make a difference in our world. Unfortunately, only about 10% of them survive and become successful in the long run.
I’m in the 50%. My first business failed in the 5th year. Why? I’m still figuring it out.
Only 10% of the start-ups make it to the 10th year and beyond. Only this 10% can achieve their dream goals. WHY?
Why do the majority of the start-ups fail? Again based on research it is found that one or more of the following could be the reason for start-up failures often.
- Money running out
- Making bad investments
- Being in the wrong market
- Lack of research
- Bad partnerships
- Ineffective marketing
- Not being an expert in the industry.
The list goes on. There is plenty of articles, blog posts, and research available online if you want to find an extensive list of reason why start-ups fail.
While still figuring out why I failed, I realized there are much deeper reasons.
I believe that what’s mentioned above are just external factors we cannot control anyway. It would be blaming others for our failures if we blindly accept those. More than the shallow list of reasons mentioned above, I realized that there are deeper reasons. The principle truths why we fail in building enduring businesses. I started with asking my self WHY!
Why the money ran out?
Why did we make the wrong investment?
Why were we in the wrong market?
Why was our research ineffective?
Why did we get into bad partnerships?
Why was marketing ineffective?
Why were we not the expert in the industry?
and so on.
By end of 2019 we were able to raise a bit more than $1 million in VC fundings. By end of March 2020, we had nothing left. We ran out of money. We had made close to another $4 million in revenue over the previous 3 years and all of that money was gone too. The direct costs and the overheads were just eating in to revenue made and funding raised. So literally, the million dollar question is “WHY?”
I learnt from my own experience that someone with little to no financial IQ can actually build a great business. A company which can actually make a difference in our world. But can someone with little to no financial IQ sustain a great company? The answer is “NO”. It takes more than pure will power, desire and passion to build a company that lasts. It takes more than hard work to build a lasting business. It takes financial IQ to build an enduring business. Is financial IQ is the only thing you should know? again, No!
The Story the Numbers Say
It was never clear what we were doing wrong and how we can correct them. We struggled to figure out what we could do to improve and forgot why we started the business and forgot to lead the business.
We were young and excited. We did everything it took to build the business. We sacrificed our stable and full-time jobs. We sacrificed our personal well being only to end up with nothing more than a failure.
Why? because we didn’t have proper financial IQ. Should anyone point this out? The point I’m trying to make here is that if you are reading this and are passionate about building a business which lasts, then start gaining financial IQ. learn how to read the financial statements. Do whatever it takes to learn this skill. Attend seminars, workshops, courses. whatever it takes. Learn how to read the numbers and how to grasp what story the numbers say.
At the end of the day, no one will say this out loud. No one would say, “oh we didn’t know how to read the financial statements, and we failed”. Everyone will go on to say, “we ran out of money”. Why the money ran out? because we didn’t see where the money was going. We couldn’t see the money was going to run out because we didn’t know the story the numbers are saying.
Money Making Money
The society has made us believe that making a lot money is bad. If you are making enough just to survive just like everyone else, then you are successful or you are a good person. but if you make in excess, there is something wrong in what you are doing. It’s against the norm. This is what we are made to believe. from education systems to corporate world, if you seek money, you are greedy. Being greedy is not good. It’s bad. You think only about your self. You think only about money. but at the end of the day, the same people who blame you for being greedy are in the rat race and they don’t want you to get out of rat race as well.
In general in business, it’s the same. If you are slow in growth, you might not look successful, even if you are steady. Your start-up has to grow to become BIG as fast as possible. If you don’t hit the 10X goals in 3 years, you might not look like a thriving start-up. This is what the society would talk about. We realized it’s not true because slow and steady is better if you are building an enduring business.
Investors look like they push for hyper growth in a short period of time. Some actually might. But there are great investors as well. For example, BOV capital who invested in us would encourage a steady growth always and push you to learn how to run a business. But not everyone is like BOV capital.
We keep pushing for growth. But what are we really growing? The top line is growing, the staff size is growing, the office size is growing and so do our liabilities, which are not spoken of. Liabilities are the hard truths we all have to solve when building an enduring business but we forget them. we don’t want to talk about the bad stuff. they will be taken care of later. let’s focus on the good stuff. see how big the top line has grown. see how the valuation has grown.
What about the bottom line? is it growing too?
To build a bottom line is to make money making money. Once a solid and consistent bottom line is achieved, this is when you can really think of investing. This is when you can plan for money making money. Where are you going to invest the profits? Are you going to invest profits back to ever growing liabilities? A large staff is a liability. A modern office is a liability. Expensive marketing budgets is a liability. Anything which will not directly support a sustainable bottom line is a liability.
Instead, would you rather invest profits in assets which will bring more money?
Be it improving the quality of the product or the service which in return brings more customers and sales,
or be it building or innovating technology which will cut costs significantly and in return further improves the profits,
or be it partnerships which which will improve credibility, capabilities and addressable market which in return bring more sales again.
Be it anything but liabilities which eat in to the money.
No one would bother to tell you this. I learnt it the hard way and I’m inspired to inspire everyone else to avoid this pit fall. No one would come forward to admit the fact that you failed to build assets which bring money. Instead, everyone would blame you for not investing the money right. How would you know how to invest money right? You have to figure it out. You have to learn. the first step is to think and start acting on building assets which will bring money. Make money make money!
If you fail, you can say “oh we made the wrong investment”. No one would tell you why you made the wrong investment. Ultimately it becomes another one from the 90%. Stay out of the 90%. Get in to the 10%. Learn to make money make money! How? BUILD ASSETS!
During the building of my business there were countless times that we were trying to partner-up with various types of businesses and individuals to further grow the business. Most these leads came from investors, advisors, founders from other businesses, etc… We just wanted to build partnerships. Why? because that looked like the right thing to do!
Once we formed a partnership with one of the largest company in the country. The business volume they brought in was massive at start. Everyone was so proud of us because now the credibility of our business has gone up suddenly, as they said! What we failed to see was that how it was eating in to our profits. Even thought the business volume was massive, it was not profitable. Why? Because we gave massive discounts to please them and to win the business. Did we know it was not profitable? We didn’t care to check? we didn’t see the story the numbers were saying too. In few months their business volume went down and we had lost so much money. We lost. they won!
What would everyone else say? It was a bad partnership.
What is a bad partnership? Why was it a bad partnership? We didn’t care to reflect? Is it their fault that no one told us? No! Is it our fault that we didn’t know? Yes!
It was the lessons learnt! If you haven’t made the same mistake yet, the possibility to avoid it is 100%.
When building partnerships, the one and the only goal you should aim to achieve is “WIN-WIN”. You are building a business. Not a charity organization. If you are building an enduring business, you need to make money. Best case, make money make money. This means whatever you do should ultimately support the bottom line, the profits.
Do the due diligence first when building partnership. Find out if the partnership will actually be aligned with your why, your values and business goals. Don’t do it for the sake of another shiny partnership. Do the numbers. See if the story the numbers say is positive about making money. Be a little greedy. Also be very clear if it’s a win for the other party as well. It has to be a WIN-WIN, not anything else. You should make money, they should make money, no one should suffer. simple as that.
The list goes on…
I can go on to write a long list of these consoling lies we tell ourselves. However, the point is not to get in to the trap of these lies. It always become your own success or lessons learned. From blaming others for not pointing out mistakes to making mistakes, the responsibility lies within you.
Running out of money? Don’t just accept the fact that money is running out. Don’t just burn the capital raised because you have it. Money is like time. Once gone, it’s gone. It takes a lot to make it back. Learn how to read the story the numbers say. learn accounting. Make profitable decisions.
Loosing money because you spent it somewhere not profitable? Don’t just lean on to the statement “we made a bad investment”. Instead start building assets. Make money make money!
The partnerships are collapsing? Don’t just only accept you made a bad partnership. Do the due diligence first. Do it for all the partnerships. Do the numbers. Look for where the money would go. Make sure the partnerships are aligned with your why, your values, business goals and purpose. Make sure it’s a win-win. Go the extra mile.
No one would tell you to learn to read numbers. No one would tell you that you should make money make money. No one would tell you specifically to build win-win collaborations. But now, you can start acting upon these facts to avoid the same mistakes I made.
Building an enduring business takes more than being able to read numbers. it takes more than making right investments. It takes more than building win-win collaborations. It takes more than knowing your why. it takes more than building an “A TEAM”. It takes more than everything together. But this where you can start! Don’t listen to the lies. Go deeper, ask why, learn what it takes, work hard! Do what you hate when necessary to become what you love!