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.
Distinctive Competence
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
- pricing
- competition
Let me give you some examples:
USI
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.
Sigma
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.
