One Reason for Startup Failure Nobody is Talking About

When building something, like a startup, it is sometimes interesting to look how the company should look like in the future. And for many of the cases, the ultimate goal is a company that runs on its own like a well-oiled machine. 

But what exactly is a company? A company basically consists of 3 things: resources, processes and priorities as you can see in the overview:

In the case of a startup, the co-founders and early employees are building these things from scratch. Most people believe that resources (people, the technology, relationships, cash,..) are what make a business successful. But the real value lays in the creation of great processes that bring these resources to life. Or in other words; Companies create value as employees transform resources into products and services of greater worth.

Usually, an early-stage startup starts with some resources in place such as technology (prototype for instance), product designs or specific relationships they have in the market. As an example; researchers work years on new technologies in university labs. The tech transfer department of the university might help the researchers to connect with companies or entrepreneurs in the market and a startup company can be the outcome. But in most cases, these researchers have no clue what to expect and, as you can see in the overview, there is still a lot of work to do. 

Creating processes

In the beginning, each of the co-founders is responsible for his/her own specific domain like sales or building the product. Each has his own work methodologies and manages it from A to Z. The only thing they need to do is aligning their activities with the activities of their co-founders. In a startup, it's the commercial co-founder responsible for customer development to align his/her insights with the co-founder that develops the product. 

However, troubles can start with the introduction of somebody new in the company (so you add a resource). Resources should be managed by adequate processes and sometimes, startup founders forget that these processes must be created first in order that new people can interact with each other in an efficient way and make decisions that are constructive to the company’s mission (priorities).

To give you an example of a situation where I felt that a “formal" process description instantly became a bit urgent was when the sales & marketing “department” in our startup Cloudalize was cut into two separate pieces: a “sales" piece and a “marketing" piece. 

Instantly, two people need to find a way to collaborate where the marketing person becomes responsible for "demand generation" en the sales person for the sales fulfilment (converting the qualified lead into a real customer).

In this situation; there is one specific moment in the process where there is some sort of an overlap: the “handover" of the sales lead. From my experience, it is really necessary to visually write down all steps of the sales process (ie. the sales funnel) and find a mutual agreement with each other who is responsible for what, and when the “official" handover of the lead takes place. 

Why Startups fail

Coping with the lack of processes upfront, the co-founders can avoid a lot of misunderstandings (collisions) between people and as such, avoid the loss of valuable time in the startup venture. And I believe that many of the startup failures are indirectly related to a lack of processes in the startup.

Here you can see an overview from CBInsights:

Take example 1: 13% of the startups fail due to a disharmony between the co-founders/employees. But the question here is; How many of these startups could have been saved by incorporating some critical processes on time?

Another example; 14% of the startups fail due to poor marketing. Many of them could have been saved by dissecting the sales funnel and put some marketing systems and processes in place before problems arise. And in this particular case, I don't mean that everything needs to be planned before product/market fit. There are methodologies to harvest important information from the market, convert these to good marketing tactics (such as content marketing leveraged with growth hacking techniques etc.) and as such re?nforce the broad vision of the company. 

So in my belief, the key to startup success is directly related to how efficient the co-founders create adequate processes. Start early and fine tune the processes over time. At a certain point in your company’s future, the processes will be that good, that the process will work regardless of who performs it. 

Questions? Feel free to reach out via LinkedIn