By Wyn Lydecker
Here is the ugly truth: Most startups fail.
In fact, the startup failure rate ranges from 75 to 90 percent.
Why is that?
CB Insights conducted post mortems of failure startups and published the results. They found that the top three reasons are:
- No Market Need
- Ran Out of Cash
- Not the Right Team
When my co-author, Ed McLaughlin, and I wrote our book, The Purpose Is Profit: The Truth about Starting and Building Your Own Business, one of our goals was to disrupt the startup failure rate. In the process, we included one chapter that distilled the business concepts and lessons revealed in the book and called it “The Ten Commandments of Startup Profit.” We published the chapter as a separate manifesto at ChangeThis.com.
Four of those commandments can help you avoid the top three reasons startups fail.
- Base your business on your distinctive competence
- Don’t startup until you have a proven business model
- Take charge of the money and control it
- Recognize and hire lightning in a bottle
Today, I’m going to tackle the first commandment.
When you have distinctive competence, you have a unique skill, talent or experience that gives you the special knowledge and insight into the market that enables you to create and develop an innovative business. Use your distinctive competence to find a real need in the marketplace and then fill it better than others can.
With Distinctive Competence, you will have insight into:
- the needs of the market
- business models that work
- how customers think
Let me give you some examples:
Ed started two businesses. One was a great success. The other a dismal failure. The success was United Systems Integrators - USI – a real estate services outsourcing business. Ed left his corporate job and bootstrapped USI after he realized that real estate services outsourcing was where he had distinctive competence. He knew the business model. He had an amazing track record of success. He had the knowledge. In the long-run Ed’s distinctive competence helped him build his business into an Inc. 500 company, which he eventually sold to a Fortune 100 company.
Nine months after starting USI, Ed started Sigma communications – to publish a commercial real estate journal that featured a corporate property exchange. It would bring buyers and sellers of commercial real estate together. This was a pure passion project. Ed had wanted to start a publishing company for years. But he lacked distinctive competence in publishing! His passion and lack of distinctive competence blinded him to the realities of the market and after three years of hemorrhaging cash, he had to shut Sigma down.
With the lack of distinctive competence, Ed failed to line up a lot of the things that made USI successful.
How Distinctive Competence Applies
I can’t promise you that you’ll be as successful as Ed was, but if you base your business on your distinctive competence, you’ll have a much better shot at avoiding the top three reasons for startup failure.
- You will already understand the market and its needs.
- You’ll have a grasp of business models that work – enabling you to use cash wisely, generate revenue, and ultimately make a profit and produce free cash flow.
- You will be a founder with industry knowledge, business acumen, or technical talent – a cornerstone of a potentially great management team.
Wyn Lydecker is coauthor of "The Purpose Is Profit: The Truth about Starting and Building Your Own Business", along with Ed “Skip” McLaughlin and Paul McLaughlin. "The Purpose Is Profit" (Greenleaf Book Group) is available at your local bookstore or on Amazon.