Why Startups Fail (And How Not To)

Back in the day, when I lived in the Bay Area, I had this tradition. Every other week, my mentor, Bill Peck, and I would get together for breakfast at Bucks Pancake House in Woodside, California. Now, Woodside is in the heart of Silicon Valley. And for those of you that don't know Bucks, Bucks is one of those places that deals just get done. It's a place where venture capitalists and entrepreneurs get together and walk through their stuff together. And I can't tell you how many deals Bill and I saw get done. And I remember one day I asked Bill, I said, what do you think will be the biggest reason why some companies that are killer, that are hot startups right now take off and others will collapse? And he said this. He said, scott, in a way that only Bill could. He said, let me draw a picture for you. And he pulled out a napkin. By the way, entrepreneurs love napkins. He pulled out a napkin and he drew a big pyramid. And he said, scott, when launching a company, he said, it's not only important to know what to do, but to do the right things in the right order. There's a syntax to launch, and if you don't follow it, things could go sideways. Here's the example. He said, let's start at the bottom of our pyramid, and this is what we're going to build off of. And imagine each thing that I mentioned being the next rung up in the pyramid. He said, we're going to start at the base with our team. He said, that's you. That's the people that you bring up, that are going to bring in that will be the foundation for this business. On top of the people, they will write the plan. And on top of the plan, you stack your technology. And on top of the technology next, you build your product and service. On top of the product and service, you build your distribution or your partnerships or your shelf space. On top of that, your marketing effort. On top of that, your sales. And those things make up the triangle. Again, it's your team. On top of that, your plan. On top of that, your tech. On top of that, it's your product and service all. On top of that, it's your distribution or partnerships or shelf space. On top of that, your marketing. On top of it, your sales. Here's the point. One of the biggest mistakes that startups make that kill them is this. They build that pyramid out of order. So here's the example. The example is, let's say that I am a great salesperson. I'm an entrepreneur, founder, CEO. My core competency is I can sell. I go out there and I start to sell, sell, sell our product, right? I sell, sell, sell, and I'm successful and I drive a lot of people to the store and they buy the product, but the product doesn't work. We didn't nail that step first. People are going to return it. They're going to have a bad experience. We may never get them back. Let's say you decide, because this is your skill, you decide to market, market, market and share with the world what it is you're doing for this killer new website that you've built. You send people because you're successful to the website en masse. They get there, but the technology, which is one of the first steps on the run, the technology isn't ready. What happens? The site crashes, people take off. You may never get them back. So again, when building a company, remember that the most common mistake that kills startups, particularly fast startups, this is they do the right things, but they do them out of order. So follow this syntax and it will help to protect you as your company grows and scales.