A closer look at why startups do what they do

Startups are all about the hustle (Photo by Al ghazali)

 

Startup is as the name suggests, you’re starting something up. So it is highly variable what you will achieve and/or accomplishments on a daily basis; it’s completely uncertain. There are a million questions and never enough time to get enough answers to make a perfect decision.

“90% of startups fail”

 

Based on a study of ~3,200 high growth internet startups, “90% of startups fail” with premature scaling being one of the biggest reasons contributing to this failure. Did they take too many shortcuts, too soon?

Every business is constrained by time and money because they all have a commercial viability to satisfy. In the startup world, people in the startup play a crucial role because knowledge, curiosity and hustle are the key to driving a startup towards success. Learning on-the-fly, solving ad-hoc problems and embracing the unknown are just a few of the many elements that one must be prepared to encounter and tackle in a startup. As part of this uphill, but rewarding battle, we naturally take shortcuts. In fact, we take thousands of shortcuts.

But, how many shortcuts are acceptable? Which shortcuts are good/bad? When should I take a shortcut versus going the extra mile? Are we going fast enough? Perhaps surviving the startup world has nothing to do with “shortcuts” at all.

Is faster always better?

Our society is obsessed with doing things faster. We want to do our grocery shopping faster, we want to prepare our weekly meals faster, we want to reach our destination faster, we want to deliver new product features faster, and this list could go on forever. But let’s slow down for a second, is faster really better? What is it exactly that we are truly after that “faster” enables us?

In the startup world, faster often means “how do we get there before we run out of money?” or “how do we find out as early as possible if customers are interested or not?”. In this context, yes, it is probably important that some key milestone(s) are achieved before you run out of money whether it’s to secure another round of funding or establishing an incoming stream of revenue.

Timing accounts for 42% of the difference between the success and failure of a startup

 

Faster isn’t always better. The “right time” plays a major role in the success of a startup. Bill Gross’ TED talk shares a quantitative approach he took to understanding what mattered most for startups and found that timing account for 42% of the difference between the success and failure of a startup. For example, Uber benefited from launching during the recession. “Drivers were looking to pick up some extra money to supplement their income.

The best way to really assess timing is to really look at whether consumers are really ready for what you have to offer them.” Although a difficult task, being honest about the results of this is crucial because being in denial will only prolong the inevitable failure.

In startups, timing is everything.

Why intuition is dangerous?

Many important decisions are made under uncertainty. We often bypass the consideration and effort of how we might be able to acquire some data or insights to inform our decision. We enjoy using our instinct and applying our expert opinion to make decisions because the human minds are defaulted to a mode of “fast-thinking”. Daniel Kahneman, Noble prize winner and author of the best-seller book Thinking Fast and Slow, refers to this as “System 1 thinking” which is fast, instinctive and emotional. He describes another main mode of our thinking as slower, more deliberative, and more logical; this is known as “System 2 thinking”. This latter type of thinking is carried out less frequently on a daily basis.

“Inconsistency is built into the design of our minds”

Intuition is a form of a mental shortcut we take in our fast-thinking. Judgement calls and decisions are usually made under pressure and so these mental shortcuts are regularly taken. But using intuition alone to arrive at a conclusion is likely to have unexpected consequences. Research studies have shown that there is little reliability when our intuition alone is used because our reactions are often based upon what we know and how we’re feeling in the moment. Uncertainty and biases are also most likely present which contributes to poor and inconsistent decisions made. Kahneman says “inconsistency is built into the design of our minds”.

Sloman Steven says that “we are less conscious of what goes on under the hood when we are thinking fast”. This is what makes intuition alone so dangerous. Our intuition is guided by our thoughts and perception of the situation. Therefore, any underlying or anticipated feelings of guilt, blame or surprise have an influence. But if we knew that there were significant benefits and improvements to be had from making better decisions, would we make more of an effort to make better decisions?

When is “good enough”?

The hard truth is that it will never be “good enough” because everything is constantly evolving, improving and changing. Our only constant is change.

I’d be lying if I said there was indeed a special number of shortcuts to take before one makes their big break through or is about to fail. It is not about the quantity or quality of the shortcut. Instead, it’s more about the learnings along the journey to be had and the expectations given the context of the shortcut taken.

“Being an entrepreneur means that you’re building something bigger than you” — Matt Watson

At the end of the day, the decision to step foot into the startup space was because you wanted to become an entrepreneur, whether you admitted it or not. As Matt Watson put it, “being an entrepreneur means that you’re building something bigger than you”. This means that one needs to constantly be asking the “right questions”. Unfortunately, it’s not “how many shortcuts should I take?” or “when is it appropriate to take a shortcut?”.

Instead, the types of questions we should be asking are:

  • What is the value proposition?
  • How many people will pay for this product?
  • How much should we price the offering?
  • Is the problem that we’re solving painful enough for someone to seek a solution for?
  • Etc.

Consumers are the only ones who will be able to tell you when it’s good enough. Money and actions always speaks louder than words. This could be reflected in potential consumers signing up to a waitlist, giving you their money and/or spreading the word about your idea/product. So until you’ve got their commitment in one form or another, it’s not yet good enough. Ask a whole lot of questions along the way and don’t be afraid to fail (but remember to learn and ask why).

Survive to succeed

The startup adrenaline is addictive. But unfortunately it is not enough to persist through the challenges and uncertainty of creating a successful startup. Sustainability is core to surviving the risks and dangers that we’re exposed to on a daily basis in the software world.

Shortcuts are a common disguise for switching tracks when the going gets tough (eg. we encounter an issue that’s too hard to solve) so that we can still obtain a feeling of instant gratification. But don’t be fooled, this feeling is only superficial as we’ll soon crave the feeling again, only to take another shortcut. This creates a snowball effect of shortcuts. Not all shortcuts are bad but how do you know if that shortcut was a good decision?

We’re familiar with the bad decisions because they’re usually an expensive mistake which resulted in a loss of time and/or money. Although if we had been able to imagine or model the potential outcomes and their respective probabilities, this could have better informed our decision. Yet, the benefits of modelling a decision quantitatively is overlooked because we are constantly rushing to make a decision so that we can move onto the next task and/or decision at hand. However, data, insights and information can be powerful and useful in the decision-making process especially when the stakes are high or when the roll-on effects are catastrophic.

Survival in the startup world is about keeping your eye on the big picture whilst juggling the multiple tasks at hand. We have not experienced such a diversity of situations where we can make expert decisions that beat statistical models. Therefore, we require hustle, follow-through and curiosity as well as smart data for improving the way we make decisions.

After all, it’s cheaper to invest a little up-front than to “guess” and a pay a lot more later.