Entrepreneurship

So many successful start-up founders believe that most of their success is due to their own actions, rather than luck and circumstance. And they are the ones who write advice books and give speeches at conferences. Yet confirmation and selection bias prevents us from understanding reality:

The number one cause of death in business is failure to make the sale. It’s never about the product, quality, management, or even the team or the strategy. It’s about selling. Look at any successful company - they started by selling a not-so-great product that may have had some differentiation but not much. People think AirBNB invented the room/flat-sharing category, but in fact the day they started, two other such companies had already gone public! Their product wasn’t a lot better, but they just happened to catch on when dozens of other competitors didn’t. You can believe the story about selling cereal and starving it out, but it’s not a recipe for success. Those who make the sale get to move on to the next round.

The number two cause of death is simply running out of money. Too many companies spend too much time on engineering without engaging customers in the market. David explains how a sales-driven culture allows for pretotyping, rather than building full-scale prototypes, thereby saving money and failing faster toward customer success.

The number three cause of death is premature scaling, adding too much risk for investors and entrepreneurs. Too many entrepreneurs fail to take small positive steps - they prefer to shoot the moon and go for the big prize. Here’s a matrix that helps understand the issue.

Don’t scale too early. In product development, learn to master each small step before going to the next. Build the best rowboat you can, then add a sail, then increase the length, then add a sleeping cabin, then a motor, and so on. You might think this is impossible with physical products, but it’s the only way anything gets built. There’s no way Boeing can design the 787 without a large number of people who designed the 777 before it. Too many businesses fail by focusing on scaling the product when they should be scaling the market instead. Remember, the first Mac computer was very small, black-and-white, and hardly did anything. The only thing it did was revolutionize the computer industry. They had to scale it up from there.

Think of your audience. Go for the early adopters and make sure you have satisfied them. Really scale into the early-adopter market first, then start thinking about the broader mainstream market. Too many entrepreneurs have ideas of going “meta” — to make their product work in many different situations for many different audiences — before they really have a rock solid relationship with their existing customer base. Too many entrepreneurs think they are building a “platform,” when they really should be focusing on delighting customers every day.

As Eric Van der Kleij says, “Nothing happens until somebody sells something.” I believe in building a marketing/sales culture first and an engineering culture second. If you can sell a product, you can innovate it, but if you have an innovative product, you may not be able to sell it.

Sure, there are companies that are crazy about design and engineering, but they often have distribution worked out. Most start-ups don’t have that luxury. Entrepreneurs should learn to give up their love of engineering and instead embrace the art of pretotyping.