Startup killers destroy 90% of companies that aspire to be the next big thing in tech and science. But before we dive into that, let’s start by looking at a connection between our fascination with real life killers and those that kill startups.
It’s no secret that one of the biggest “guilty pleasures” Americans have is a fascination with serial killers. Perhaps it’s because they give us an adrenaline rush. Maybe it’s because they give us normal people an outlet for the suppressed thoughts tucked away in the dark labyrinths of our minds. Or maybe they just make us feel a lot better about our own mundane flaws!
“Part of the fascination with serial killers is that they’re so rare. In fact, there are only about 25 serial killers active at any time in the United States. It’s like a high speed chase in that both are so rare you have to see what all the fuss is about when it does happen,” said Scott Bonn, criminologist and best-selling author of “Why we Love Serial Killers: The Curious Appeal of the World’s Savage Murderers.”
In the startup world, serial killers aren’t so rare, unfortunately. No, don’t worry. I’m talking about intangible, non-human killers. But they still can and do ruin lives when they strike. So, how not-rare or they? Well, given that nine out of ten startups will fail because of these killers, pretty not-rare. In fact, it’s more rare that startups survive.
Let’s take a look at some of the most notorious startup serial killers.
Choosing the wrong cofounder
One of the most common killers of startups is the inability of a founder to find a good cofounder. Someone that they have a rapport with already. “Too often I see entrepreneurs or founders who’ve only known each other a few weeks reach an agreement to go into business. It’s just not as natural a relationship as doing business with someone you’ve known well for years,” explained Eve Livingston, founding partner of Silicon Valley startup gem Combinator.
“When two top people cannot work well together it just kills the startup. If an investor gives them two hundred grand, one cofounder will immediately think half of that is theirs,” Livingston continued.
How many stories have you heard about business partners working together for years in garages or rooming together for years in college? Tons. Maybe there’s something to this whole camaraderie thing.
Unequal equity one of top startup killers
Another big killer of startups is a disproportionate split in equity. Imagine you’ve been running your startup for years. Finally, you partner with a cofounder and five months in, he or she suddenly wants the same equity as you. The gall.
“Like any business venture, you have to look at the big picture. Look at what lies down the road instead of doing one-year commitments. Equity for the long run not immediate. This allows a cofounder to invest emotionally in a company and feel completely committed. Putting this confidence in them will drive them and they’ll want to stay for long-term,” said Livingston.
Remember that whole “make sure your cofounder is someone you’ve worked with for years” thing we discussed earlier? Well, there’s a drawback to that. But nothing that can’t be avoided. Even so, it is still a notorious killer of startups.
See, when friends start a business together, all parties become reticent to take the reigns. They’re afraid of jeopardizing their friendship by being too abrasive and proactive. “If four buddies from uni launch a startup, chances are that one will ask why so-and-so is in charge and not them. When this happens, inefficiency almost becomes inevitable.”
Actions that are distractions
Livingston told Forbes that when it comes to the infancy stages of a startup, founders should focus on developing their idea into a product that people actually want to use.
“It’s not even close. The biggest killer of startups, specifically in the first year, is the inability to make something usable to people. Inexperienced founders are going on coffee dates with investors and playing golf with potential partners but these are just distractions. Investing that time in developing and evolving your product and talking to users would go a much longer way,” explained Livingston.
“Not to mention that getting dragged into relationships with investors so early runs the risk of being pushed into fundraising mode before your company is even ready.”