3 Reasons to Scrap Your Startup
By Sean Jacobsohn, a partner at Norwest Venture Partners and former SaaS executive with broad technology, sales and business development expertise.
Contrary to common belief it’s not poor market timing, aggressive competition or a lack of ability to raise capital that kills the bulk of startups. Rather, according to CEOs of failed startups, it’s a lack of market for their products. That’s right—all too often startups burn through their funding, iterating on their big idea, without validating that it solves a problem at a price customers are willing to actually pay. In the enterprise, this is even more critical as early adoption needs to be closely matched with the proper pricing structures. But even if you’ve hit on a true need in your market, there are still a number of other pitfalls that can be hard for first-time entrepreneurs to avoid. Three of the most common reasons I see enterprise products and start-ups fail include:
Low customer adoption/use. If it takes too much time to onboard, doesn’t resonate with CIOs or your target buyer (which could be the head of marketing, sales, finance, HR) or is too cumbersome for employees to use, it won’t gain traction.
Product is not working as intended. Customers may have initial patience for a few minor bugs, but ongoing problems requiring significant rework can sink your company. This is especially true in the enterprise market, as your product outage could cost your customers thousands or even millions of dollars.
Doesn’t address a top problem of your target customer. No matter how amazing your product is or how well it solves your customers’ problems, most companies only have enough budget to address their top two or three pain points. Creating robust buyer customer personas ensures you’ve done more than just scratch the surface of their true organizational needs, allowing you to prioritize your product roadmap accordingly.
The Road Map for Ensuring Startup Success
Communication is key. At Norwest Venture Partners, we’ve found that it’s important for enterprise companies to start by creating a customer advisory board and involving them in the development of each new product or product iteration. Test and obtain feedback from them in real time, as they use the product and test out your demos, and do a weekly gut check to evaluate how sentiment is trending. Start small and work out the kinks before scaling up to your overall customer base.
By involving your customers in your product iteration, they become more invested in your success. In turn, that means they’re more likely to give you the level of rich feedback you need to take your product to its next level and win over your market.
Some founders worry that they can only keep their clients happy by delivering every product iteration they request, but that’s not the case. If you involve your customers in your product development process, they will see the issues you encounter along the way, and won’t be surprised if it doesn’t ultimately work out. Focus on how you can get them excited about helping to define the roadmap–which may include scrapping some products that won’t keep your product on the path to success and longevity. Your customers aren’t just buying that initial product you have on offer. They’re buying your long-term vision too.
If you’re concerned that scrapping a feature too soon is going to sink your company, consider the alternative. What if you hold out hope for six, nine or even twelve months and the end result is still the same? By failing to take decisive action, you’ve now wasted resources, money and customer time on feedback for your doomed product. This misstep can put you at a disadvantage to your competitors and even cause you to lose some great people who wonder why you let them sink so much of their time and creative energy into a project that had little hope of seeing the light of day.
Identifying the Right Market to Disrupt
To be successful, a startup must build products that solve real problems the right way.
“You have to look for new enabling technologies, or major trends, like fundamental trends, that create a wide gap between how things are done and how they can be done,” said Aaron Levie, CEO and co-founder of Box, in his Building for the Enterprise lecture. “Looking back in time to our business, the gap was basically storage was getting cheaper, internet was getting faster, browsers where getting better yet we are still sharing files with this very complicated, very cumbersome means. Anytime, between the delta of what is possible, and how things work today is at its widest. That is an opportunity to build new technology to go solve a problem.”
But even great ideas can fail. So how can you recognize when you’re actually on to a billion-dollar valuation-creating product? In my experience, immersing yourself in your customer’s world is the best way to gain the awareness to spot the real opportunities for market disruption. For instance, it’s unlikely that Marc Benioff would have had the inspiration, confidence and vision to have moved CRMs into the cloud with the founding of Salesforce without his years of success at Oracle. As Benioff counsels in his book Behind the Cloud, “Don’t be afraid to ignore rules of your industry that have become obsolete or that defy common sense.”
Although some outsiders have a knack for coming in without prior industry experience and hitting the ball out of the park, most successful startups are founded by someone who is obsessed with creating a better customer experience, who understands the industry’s pain points and daily challenges inside and out. If you can tap into the issues that are driving your customer crazy and causing them to lose sleep while efficiently solving them, the market is ripe for your taking.
Sean Jacobsohn is a partner at Norwest Venture Partners and former SaaS executive with broad technology, sales and business development expertise. He focuses on early to late stage investment opportunities in enterprise cloud, including SaaS, mobile-first business applications, B2B marketplaces, VR, AI, and machine learning in the enterprise, and industry cloud solutions in the following sectors: healthcare IT, financial services, real estate, transportation, manufacturing, oil & gas, and agriculture. You can follow Sean at @sjacobsohn