Running a company is never easy. Trying to start one and keep it afloat is even harder. If you've ever thought of running your own company, you need to be aware of how to avoid all the common pitfalls that you will be fighting against.
There's no playbook that can apply to every new company, and every startup grows differently. But there are some general concepts that can help you focus how you measure progress and ensure that your company is on the right path.
When working on his startup IMVU, Eric Ries identified some of these concepts and compiled them in his book, The Lean Startup. In the book, Ries shows how to build a successful startup by:
- Identifying common problems companies run into
- Showing the mistakes that people usually make when addressing those problems
- Suggesting solutions that can help you solve those problems without making those mistakes
The book is split into three main sections which mirror the stages companies go through as they experience growing pains:
- Vision: In this section, Ries first sets the foundation by defining what makes an entrepreneur and what makes a startup. Because all startups are unique, there's no one way to reach sustainability. But through his concept of “validated learning”, which is a way for startups of any size or shape to use scientific experimentation to discover how their business can become sustainable, it's possible to find the process that works for your company.
- Steer: This section introduces the Lean Startup method of building up your company through the Build - Measure - Learn model. Within each component, there is a main question that companies must address to move in the right direction. This section will address each question as well as mistakes to avoid and solutions to implement.
- Accelerate: Coming from the lessons discussed in the last section, this section details techniques that can help Lean Startups move through the Build-Measure-Learn feedback loop, even as they scale. This section also discusses how to apply Lean Startup principles past the initial growth phase and into even the largest of companies.
In this article, we'll focus on the most actionable of the three: Steer. We'll walk through each component of the Build - Measure - Learn model and discuss what your company should be doing to address the key question at each stage.
Why Do So Many Startups Fail: The Two Most Common Problems
Before we get too deep into the weeds of how to fix your problems, we should first mention the two most common fundamental structural problems that most startups face and why they lead to failure.
These are problems to do with how you design your company strategy. They determine how you troubleshoot problems and create your management structure. While they may not seem like problems in the beginning, over time they will wear away at how your strategy is designed until your structure is no longer sustainable.
Structural Problem 1: The allure of a good plan, a solid strategy, and thorough market research
Many of the most successful big companies operate under a strong plan and strategy that they've tested, altered, and perfected over time. But from the outside, it just looks like the companies landed on a system that works perfectly. They don't see the years of change that have gone into finding a system that works, as well as establishing for themselves an environment that is relatively stable.
Some startups may see this and think that having a strong plan and sticking to it tenaciously is the secret to ensure success. But for startups, having a strong plan isn't enough. Unlike large companies with lots of room for error, startups face uncertainty in terms of an ever-changing market and a demand for their product, and need to be able to adapt their plan. If your startup makes their long-term plan too rigid without leaving room for flexibility — you're sure to fail.
Structural Problem 2: The “Just Do It” School of thought
This problem is a complete 180 from the previous one — it's a complete lack and rejection of managerial structures. Instead of being too rigid and sticking to a plan, these startups don't even have one. They weather problems as they come and adapt their processes to fit their current needs. Changes are made to be “band-aids” for current problems, rather than long-term solutions for larger potential issues that may arise.
The problem here is that things quickly become chaotic and get out of hand. A solution that fixed one problem soon becomes a catalyst for more problems. Short-term solutions don't solve any long-term problems, and companies end up having to play catch-up instead of spending that time planning for the future. Over time, a company that remains stagnant and doesn't grow gets quickly overshadowed by competitors and loses their place in the market.
The Build - Measure - Learn Model
Rather than building your company following either one of those two extreme structures, you should be using something that takes your company's unique needs into account and evolves with your company. That comes in the form of the Build - Measure - Learn feedback loop. This model incorporates the three fundamental activities startups should be focusing on:
- BUILD: Turn ideas gained from feedback and data into products
- MEASURE: Measure how customers respond to the product
- LEARN: Gather data on whether to pivot the direction of your product or continue to build it up
When addressing the key question in each of these components, there are common mistakes that companies tend to make that may end up making things worse for them in the end. We'll discuss what some of these mistakes are and offer some general solutions that companies should be using instead to address the key problem.
BUILD Your Product
The first thing you need to do to have a company is to actually build your product. But the problem here arises when you need to figure out WHEN and HOW to start building this product.
Common Mistake: Some entrepreneurs with the “Just Do It” attitude will hardly conduct any research and just jump head first into building a product.
The problem here is that you could end up spending a lot of money building a product that people don't understand or aren't ready for. Or even worse, you spend too much time making complex plans with a lot of assumptions AND THEN spend a lot of time and money putting those plans into action. But no one wants what you've made.
Common Mistake: Entrepreneurs with analysis paralysis will spend too much time analyzing and talking to customers and strategizing at whiteboards.
The danger with this is that you will never get the customer/product interaction you need. You spend so much time looking into hypotheticals and tweaking details with your team that you never get the feedback you really need — the feedback from your customers. Analysis paralysis also often leaves teams stressing over things like legal issues, fears about competitors, or branding risks. By the time they actually get around to releasing their product, they're WAY too late.
Solution: Start building early.
Wasting too much time in the hypothetical without actually building your product will leave you wasting time on things that may not actually be problems. Instead you need to start by building a lean plan, then by getting your hands dirty and seeing what your product could turn into you will get a good idea of what sort of research you should be conducting.
Solution: Build your Minimum Viable Product.
Find an early adopter whose needs are most accurately met by the product and then establish your MVP. Many of the most successful SaaS leaders have gotten their feet wet by building an early MVP and getting feedback. Early adopters will be more understanding in the early stages and give the quality feedback you need.
These customers will give you feedback on things like a missing feature. But if you already had that feature slated in the roadmap, then you know that you understand your customer and the customer understands you. But on the flip side, if you have something planned that customers aren't asking for, cut it. Don't waste time on things your customers don't want.
MEASURE Progress and Success
Now that you have your product, it's time to see if your customer likes it. But how are you going to determine whether you've made progress or if you've been successful?
Common Mistake: Using vanity metrics to measure success.
You want to be looking at reports that demonstrate clear cause and effect. If you get caught up looking at numbers that go up based on superficial results and mistake that for success, you're leading yourself to false conclusions.
Common Mistake: Following traditional methods of accounting.
Measuring progress traditionally is based on creating forecasts to predict how well you will do over the next period and then comparing the results to predictions. However, this method doesn't work with startups, because startups are too unpredictable to accurately determine progress with forecasts.
Solution: Innovation Accounting
Start by measuring your startup where it is right now to help you find the right actionable metrics that fit your needs. Make sure that these metrics have a cause and effect so that you're getting real results and information.
Things like cohort analysis where you look at the performance of each group of customers that comes into contact with the product independently are a good example of tests that will give you useful results.
Solution: 3 Metric A's
Use these three A's to help you determine what reports to use to judge your progress and success.
1. Auditable: Make sure mechanisms that generate the reports are not too complex. Draw them directly from master data.
2. Actionable: Make sure the reports have a cause and effect.
3. Accessible: Reporting and data should be simple and part of the product so everyone knows how to interpret the metrics
Solution: Kanban Rule
A technique taken from lean manufacturing, the principle of Kanban keeps things prioritized and makes sure you don't go over capacity. In this rule, projects are put in one of four categories:
- On Deck
- Actively Being Built
- Being Validated
You set a hard max for the number of projects that can be in a category at a time. No project is allowed to move to the next stage until a spot opens up.
Though your team may experience some initial frustration when trying out this technique, once they get used to it they will become much more productive and better at prioritizing what projects need to be completed first.
LEARN When to Pivot and When to Persevere
So you've gathered your data, and you've done the analysis to determine how your customers feel about your product. It's now time to decide whether to continue down your path, or move onto a new product.
Common Mistake: Continuing on a poor product.
If you are building the wrong thing, optimizing the product or its marketing will not yield significant results. This can easily happen if you've been fooled by vanity metrics into believing something is working when it's not. You're just going down a road that will eventually lead to a dead end.
Common Mistake: Mistaking failure for the end.
Realizing you failed can lead to low morale, but letting that bring you down will mean that you're giving up before trying to find a solution that works. Don't give up just because something doesn't work the first, third, or tenth time. Listen to what your customers are telling you and use that to guide your next development.
Solution: Set learning milestones.
Startups are environments of extreme uncertainty, there's no doubt about that. But that doesn't mean there aren't ways to figure out how the team is demonstrating progress. By setting learning milestones, you're validating that your team is learning and growing over time. You'll show that your team has discovered valuable truths about a startup’s present and future prospects. It is a more concrete, more accurate, and faster way to determine progress than market forecasting or classical business planning.
Solution: Pivot when it's time for a change.
This means changing your fundamental business strategy, sometimes almost completely. It's not an easy thing to do, but it's a fact of life for growing businesses. This change can help you test a new fundamental hypothesis about a product, business model or engine of growth and may be just the change you need to succeed.
To pivot successfully, you need to be willing and unafraid to fail, even in a public way, and admit your mistakes. Then you can own up to those mistakes and show that your company is willing to change to succeed.
Solution: Persevere when a big win is in sight.
Even if you haven't met the goals you set for the period, it doesn't mean you should give up. If you notice that your actionable metrics are on the rise, it means that it's worth persevering through the next period to see where your product can go.
Knowing when to continue and when to change lanes is an important skill to learn so that you don't waste money on a fruitless effort, but also so you don't give up on something that could be a big win.
Find Your Own Model
Every startup is built differently and will follow a different path to success. But there are some paths that will definitely lead you down a road that may be hard to recover from. By following the Build - Measure - Learn model, you'll be able to identify if your company is making any of these common mistakes. Once you've identified the mistake, you can reorient yourself to figure out how best to avoid it.
Just because one tactic doesn't work for you, doesn't mean that there isn't a solution out there for you. Take a breath and try something new. Building a Lean Startup was never meant to be easy, but you wouldn't be doing it if you didn't want a challenge!