start-ups

The Two Big Reasons Why Start-Ups Fail

By Mark Evans in Startups No Comments Tags: , ,

FailureAccording to a study by the Startup Genome Report, most start-ups fail due to premature scaling. In simple terms, they try to grow too fast, spend money on the wrong things, hire too many people, etc.

This may have some truth but from personal experience in working for and with start-ups, there are two bigger and more fundamental reasons why most start-ups fail:

1. Their idea or vision isn’t compelling, interesting or fills a void or need.

2. Their usability of their Web sites is terrible, making it difficult, if not impossible, for time-strapped consumers to understand the service, let alone embrace it.

It’s a devastating one-two punch that leaves many start-ups doomed from the beginning, regardless of how well they scale or manage their money.

Much like it takes little time to tell whether you’re going to click with someone on a date, you can tell fairly quickly whether a start-up has any chance of success based on their idea and usability.

Let’s take a look at these two key ingredients:

The idea: At the end of the day, a great idea is going to make or break a start-up. You can layer on whatever you want such as excellent public relations and social media programs or a beautiful design but if the underlying service doesn’t meet a need, void or delight a user, the chances of it winning over enough consumers to create a business are bleak. It’s the old adage that “You can put lipstick on a pig, but it’s still a pig”.

Too many start-ups get excited about creating a feature rather than a service. What they’re offering is interesting but not interesting enough to get enough people on board. That siad, you would be surprised to see how many entrepreneurs fall so deeply in love with their idea that they forget about whether it has enough substance to be compelling to other people.

Usability: Assuming the core idea has some potential, too many start-ups doom themselves with bad messaging, navigation and design. It means that even if someone found the service to have some appeal, their ability to try it out is under-mined by confusing language, un-intuitive navigation and weak calls to action.

The truth is most Web users are lazy. They want things to be easy, user-friendly and not involve a lot of work. As a result, an online service has to be totally accessible and a snap to grasp, otherwise users will quickly move on to the next service or thing that catches their eye. Some good examples of companies that pass the “get” test with flying colours are MailChimp, Freshbooks and DropBox. In takes seconds to know what they offer, and what people should do next after visiting their sites.

From where I sit, the idea and usability set the stage for failure or success before premature scaling. Many start-ups don’t even get the chance to prematurely scale because they’ve already failed.

For entrepreneurs, it means they should test and re-test their idea. Does it resonate with people enough to seriously explore it? Does it fill a need or void? Is a service or a feature? Then, the focus has to be on making the service accessible enough so enough people will take it for a test-drive and, hopefully, become users.

For more thoughts on the Startup Genome Report, check out John Cook on GeekWire.

As well, a good read is Rob Walling’s blog post on the importance of start-ups being able to find a way to convince consumers to give you more money than what it costs to acquire them.

The Bottom Line for Startups: Delight or Die

By Mark Evans in Startups 1 Comment Tags: , , ,

ImagesI spend a lot of time working with start-ups, particularly helping them with content, communications and, increasingly, their Web site usability needs. It involves a lot of focus on making sure they are telling the right stories to the right audiences, their messaging is clearly articulated and users quick “get” what they do, and their Web sites are accessible and easy to navigate.

But, in many ways, this work is irrelevant if the underlying service doesn’t delight the user. I like the word “delight” because it succinctly captures the essence of whether a start-up will “do or die”. We live in a multi-tasking, attention-deficit world so if a service fails to quickly strike someone as useful, valuable or compelling, it’s game over.

This may seem overly dramatic but, frankly, this is the challenging landscape in which start-ups operate. Most people don’t give themselves enough time to truly evaluate whether a service has merit or not. They want immediate gratification so it’s crucial for a start-up to provide users with a service that is easy to understand and does the job well.

If a start-up doesn’t delight, they’re dead in the water because a user will dismiss them in a heartbeat, and move on to the next service.

Now, delight consists of different components.

There’s the messaging that surrounds a service, providing users with information about the features and benefits, and answering the crucial question: what’s in it for me? There’s good design and a navigation structure that needs to be intuitive and dead simple to use – everything from the home page messaging and the FAQ to the About Us page and the registration process.

And then there’s the service itself, which has to meet a need or a perceived need the user may not think they have until someone points it out to them. The service doesn’t have to be complicated or particularly feature-rich, it just has to delight. A good example is Dropbox, which makes it easy to share files online. Dropbox isn’t oozing with features but it is useful and easy to use.

One of the biggest mistakes made by start-ups – aside from unclear messaging, bad story telling and incomplete business models – is the belief that more (features) is better. Rather than making their service useful, they make it so complicated that users don’t know where to start or they get so frustrated trying to figure out what they’re supposed to do, they walk away.

A key part of the problem is when a start-up has developers, creating more new features is seen as the obvious way to keep them busy. As a result, the feature line-up continues expand rather than ensuring that users enjoy, leverage and make better use of the existing features.

In other words, the service becomes un-delightful.

It means the focus must be on meeting the needs of the user in a way that’s accessible, easy to understand and a breeze to use. In other words, you need to delight them.

Of course, it’s easier said than done but if a start-up can crack this nut, their chances of success are greatly enhanced and you might even convince them to pay for the service, which is another tale for another day.

Canadian Startups Need a Paul Graham

By Mark Evans in Startups 4 Comments Tags: , , ,

GrahamIn addition to Steve Jobs, there are other bigger-than-life technology players in Silicon Valley. One of them is Paul Graham, who is creating – or has created – an aura as a startup guru with the amazing things happening at his YCombinator incubator.

It’s a brilliant model in which aspiring entrepreneurs receive $15,000 to $25,000 in seed funding and about 12 weeks of mentorship and product development help. In return, YCombinator takes about a 6% stake in each company. It’s a volume-based business model that has generated a tremendous return on investment.

One of its success stories is BackType, which was started by two Canadian entrepreneurs, Christopher Golda and Mike Montano. In July, BackType was acquired by Twitter.

For anyone not convinced about what YCombinator is doing, the evidence was on full display earlier this month when it held a demo day featuring 63 start-ups and about 200 drooling investors chomping at the bit for new opportunities.

Who know how many of these start-ups will be even modestly successful but they’re getting an opportunity to be successful by getting a little bit of money and a lot of valuable mentorship and support. For many start-ups, this may be all they need to take an idea from the back of a napkin or their parent’s basement into a company with a shot at getting some traction. Then, anything can happen.

In Canada, the incubator model is starting to gain a some traction with new funds emerging that operate along the lines of YCombinator by providing a modest amount of financial support and other supports such as office space and advisors.

It’s definitely encouraging but it’s just a start for a sector that needs a lot of support for Canada to become a start-up hotbed. In many respects, Canada needs a Paul Graham who can lead the charge with a combination of personality, money and influence.

We need someone who can champion Canada’s thriving start-up landscape that is teeming with entrepreneurs doing all kinds of interesting things. Without being too dramatic, I can honestly say this is the most exciting time I have seen since I have been involved with start-ups as a reporter, founder/employee and consultant over the past 15 years.

Given this landscape, a Paul Graham or someone like Paul Graham could do wonders for Canadian start-ups that need a small amount of support to go from good to great.

 

Want to Capture the Spotlight? Be Successful

By Mark Evans in Blogs, Media, Social Media 1 Comment Tags: , , ,

Over the past two years, I have worked with a lot of start-ups looking to establish themselves and attract media and blogger coverage. After all, what better way to jump-start your business than quality coverage from high-profile newspapers and bloggers.

The problem is there are dozens, if not hundreds, of new start-ups looking to capture the spotlight each and every day. Even if you have created a better mousetrap, it doesn’t guarantee coverage. It can be a frustrating because there are start-ups with amazing technology and innovative services that fail to get even a sniff of attention.

The problem is there is too much digital noise and competition, which makes rising above the crowd challenging.

The start-ups that do get coverage in the New York Times and blogs such as TechCrunch are anomalies. For whatever reason, they have the right story at the right time, and it has little to do with the quality of their technology, service or the excellent pitches crafted by PR agencies.

So how does a start-up attract media and blogger coverage? The answer is simple: be successful.

It’s not enough to have an innovative product or service; what really matters is if you can attract enough users or customers to validate that what you are doing is interesting or, at least, newsworthy.

Only then will your story start to resonate with reporters and bloggers. It really boils down to what reporters and bloggers like: success or failure. If you’re wildly successful, that’s interesting. If you explode and make millions of dollars in venture capital disappear, that’s interesting. If you’re a start-up with an innovative service but few users, that’s not interesting or newsworthy.

Does this mean start-ups with few users give up on trying to get media and blogger coverage? Probably not. What it does suggest, however, is having realistic expectations about how much attention you will attract when there are few people using your product or service.

Rather than being disappointed when the world doesn’t beat a path to your door, a better approach is focusing on improving your product or service, and growing the business. Don’t worry about attracting attention from reporters or bloggers. If you’re business becomes a success, you can hit them again with a much more interesting story.

Bottom line: If you’re a start-up with no or few customers or users, getting media or blog coverage is a major challenge. It doesn’t mean what you’re doing isn’t interesting; it just means that it’s not newsworthy until more people endorse that what you’re doing is worthy writing about.

“We’ll Figure it Out Later” is Not a Business Model

By Mark Evans in Twitter, Venture Capital 6 Comments Tags: , , ,

I’m in the process of reading Chris Anderson’s “Free”, which celebrates how the idea of paying little or nothing for many digital products and services is inevitable. Anderson makes a compelling argument that includes the belief that free works because it encourages other economic activity. For example, free music allows musicians to attract more fans, who then cough up money for concert tickets, merchandise and sometimes CDs.

While I like and use plenty of free services (GMail, Evernote, Skype, Firefox, Twitter), I’m also a businessman who recognizes that companies need to generate revenue to pay employees, do marketing and keep the lights on. However companies plan to make money – advertising, premium services, consulting fees – they need a plan to drive revenue to make the business viable.

The problem, however, too many start-ups have little or no idea of how they’re going to make money. Instead, the have a “business model” based on the idea that if they attract lots of users, a way to generate revenue will magically appear. After all, this “model” worked for Google, which struggled to find a business model before “borrowing” its pay-per-click business model from Overture, so why shouldn’t it work for other start-ups.

This “we’ll figure it out later” business model is flawed because while offering free services is a great way to attract users, not having an idea about how to make money from some of them is not a viable build a business.

The biggest culprit of this business model is Twitter, which still doesn’t seem to know how it’s going to make money. Sure, there’s been talk about advertising, premium business services or analytics but nothing has emerged yet. Still, it has raised $150-million in venture capital based on the fact it has become a wildly popular communications vehicle with more than 50 million users around the world.

While Twitter may eventually find a way to make revenue, it’s an exception to the “we’ll figure it out later” strategy. The vast majority (99.999%) of companies never attract enough users to figure it out. When the seed capital or venture capital is exhausted, they’re left with a modest number of users but no way to make money. Pretty soon, the pink slips are handed out, the lights turned out and the doors are closed.

So why is that so many start-ups get launched without a clue of how to make money beyond the notion that getting enough users might let them attract some advertising revenue? Why do many start-ups attract investors without even having a rough idea about how make revenue?

Make no mistake, free is wonderful for consumers, and there are clearly ways that free can be used as a powerful marketing tool to drive sales of other products and services. But for many companies, free is un-viable business model. Without an idea of how to make money, they never evolve from being interesting projects to businesses.

Instead, most up of them end up as fodder for the “free economy”, never to be heard from again as they disappear into the digital ether.

The Recession: A Victory for Canadian Startups

By Mark Evans in Venture Capital 2 Comments Tags: , , , ,

While the economic recession has been tough on many people, it has arguably been a good thing for Canadian start-ups.

What? Yup, bad times = good times for Canadian start-ups.

Here’s why: One of the realities of the recession has been that many companies have slashed their workforces to control costs. Many of these employees are smart, productive and talented but were turfed because corporate survival became paramount. These people are developers, programmers, designers, business analysts, communicators, marketers, salespeople and accountants.

With dim job prospects, many of these people started to take on project, contract and freelance work. The rates they have been charging are relatively modest given it’s been more important to get work than squeeze out every last penny from clients. In the process, these people have discovered they like being their own boss rather than working for someone else. The lifestyle freedom, flexibility and, as important, new professional challenges have proved to a good thing.

At the same time, customers are happy because they’re getting work from skilled and enthusiastic suppliers at lower costs than hiring a full-time employee or hiring a full-service agency. As a result, it’s been a win-win scenario for everyone involved.

So, what does this mean for Canadian startups?

Already forced to operate lean and mean because there’s a dearth of venture capital around (although that appears to be changing), Canadian start-ups have been able to tap into modestly-priced talent to get things done – anything from user-interface , design, development, marketing, financial services and sales work.

In the midst of the recession, start-ups have been able to get a lot of done without spending a lot of money. It may be a difficult economic landscape but start-ups are working to take advantage of it.

The big question is what happens when the economy starts to recover? What happens to many people who start getting full-time jobs again? Will this talent pool start to disappear? Will prices for freelance, contract and project assignment start to increase? Will start-ups stop enjoying a “Recession Dividend”?

The answer is probably but perhaps not to extent that you might think. Some people who have been forced to do their own thing may not want to head back to the cubicle farm, and will continue to offer great service at reasonable rates. Meanwhile, some companies that have received received bang-for-the-buck from freelancers and contractors may start to think there’s no reason to pay higher rates so they will continue to stay away from hiring full-time or using a full-service agency.

As we start to head out of the recession, there are encouraging signs that Canadian start-ups have weathered the storm and that smooth waters are on the horizon. With access to modestly-priced talent and an encouraging number of new seeds fund being created, the Canadian start-up landscape may be poised for good times.

What do you think? Have start-ups been able to capitalize on the recession? Will they continue to benefit when the economy bounces back?

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