Why Startups Fail - Building the Wrong Management Team

Building the Wrong Management Team

Building a business is a people game. No matter how good your concept, your core technology, or your product, your startup will fail unless it has the right team behind it. In fact, when CB Insights conducted postmortems on over 300 failed startups, they found that seven of the top 20 reasons for startup failures related to people issues and company culture; similarly, Entrepreneur found that 23% of tanked startups attributed their failures to issues with their team.

As we’ve seen, many other triggers for failure — up to and including simply running out of cash — can actually be traced back to underlying problems with the people making the decisions. People are expensive, with startups paying an average of $300,500 in payroll for their first five employees, according to Smart Asset, but even paying top dollar is no guarantee that your early employees will be able to deliver the results you need.

Of course, every business leader understands the importance of building a good team. The people you hire early on will shape your culture and your capabilities in critical areas such as sales, marketing, and finances. But it’s important to realize that failure is often baked in even before you start making your first hires, with the makeup of the founding team itself.

Building a good team starts with the founder. Consider Powa, a British e-commerce startup that struck a killer deal granting them access to 1.3 billion Chinese customers. Founder Dan Wagner ignored advice to play it cool, and instead gave a triumphant interview to the BBC that alarmed his Chinese partners and caused them to cancel the deal altogether. Because its founder lacked the ability to keep his ego in check, Powa lost its shot at a billion-dollar IPO and ultimately collapsed into bankruptcy.

Such horror stories underscore the need for founders to take a long look in the mirror when they’re first starting out. It’s important to not only be humble but to recognize the things you do well — and even more important to recognize the things you don’t do well. Perhaps you’re a great pitchman for your product, but don’t have a head for finance, or maybe you’re a tech specialist who freezes up like Zuckerberg when the cameras are turned on. Either way, finding the right co-founders and hiring the right startup team can help to fill in the gaps in your skillset — as long as you take correction, delegate and defer when necessary, and have the strength and humility to recognize your own shortcomings.

Another common problem is for founding teams to be full of ideas, but unable to build a core product. Looking back on their experience, the founders of recruiting portal Standout Jobs admitted that they’d struggled to create an MVP (minimal viable product) on their own. “That was a mistake,” they wrote . “If the founding team can’t put out an MVP on its own (or with a small amount of external help) they shouldn’t be founding a startup.” Later you will learn how BOSS’ Alpha Beta, Launch Experience (ABLE) addresses this.

Such failures can stem from a lack of technical savvy, but they can equally spring from a lack of alignment among founders about what their motivations are. Startups are powered by passion, and building a company requires an immense amount of self-belief. (Lesson I have learned intrinsic and extrinsic motivations intrinsic being the motivation you get in a game, extrinsic being money and reward. Startups that are the most successful have a team that is intrinsically motivated), if you hire people that are money motivated you will lose them because I can tell you money is an insatiable appetite. If you aren’t all on the same page from the get-go, so alignment is key I cannot press this enough and I don’t just mean your leaders, investors, rank and file staff and the whole team must see the north star as clean as a summer night. it’s easy to find yourself losing interest, pulling in different directions, and arguing instead of co-creating. There is no place for ego in startups and ego is not confidence or pride.?

Finally, a word of caution: hiring the right people doesn’t always mean hiring more people. At one company where I recently made an investment, the founding team was made up of former executives and consultants, and all they really knew how to do was hire other managers. The CEO simply couldn’t get his head around the notion that his tiny startup didn’t need a phalanx of C-level managers, and in the end, he wound up having to step aside so we could build a right-sized team capable of delivering the required results. It was a messy situation, and one that could have been avoided with a clearer understanding of the purpose of the founding team. At the start you need grit, grind and people that have an “I’ll do it” mentality, not “I’ll need to hire for that” or “that's not my job”.