How Not to Start a Startup

Opinion

Startups can be a lot like first girlfriends (or boyfriends). You fall madly, passionately in love, think of them 24/7, talk, walk, eat, drink, breathe them, put everything into them and beyond, but sometimes, despite the passion, it just doesn’t work out. And, actually if you’re willing be to be brutally honest, in retrospect the person was often a serious pain in the ass.

So given that you’re going to start a startup, despite the risks of financial ruin, public humiliation, and watching years of your prime swirl down the drain, here are a few things you should consider NOT doing along the way! I realize of course, that these thoughts are going to be totally useless if that glint of love is already shining in your eye—nothing is going to stop you from trying your idea, and nothing should, least of all a blog post! But maybe if it doesn’t quite pan out and you’re still one startup away from being the next Zuck, then you might dust this posting off when you’re looking for that next big idea.

1. Don’t start a company in an ebbing tide.

Startups are inherently risky. Just look at the companies that seemed to have everything right—dream team management, great technology, plenty of money, etc. etc., and they still go belly up at an alarming rate. So given the risks involved, I think it makes a lot more sense to start a company in an industry that is clearly going to grow over the next few years than one in a flat or even falling sector. Can you build a great, successful startup in the print magazine business today? I’m sure you can. But it’s probably going to be an uphill battle, considering circulation is in a free-fall and most magazines look more like leaflets than the former thick glossy phonebooks of our salad days. The point is that in a robustly growing market, you can deliver a less-than-perfect product or service and STILL get traction. Customers tend to be a lot more patient with startups that only solve half their problem if the alternative is solving none of it.

2. Don’t do something you know 20 other startups are already doing.

This is just simple math. In virtually any startup arena, there are only 2 or 3 companies that have happy endings to their stories. The rest get pretty quickly forgotten, but believe me, they were there plugging away just as hard as the winners. If you already know there are several other teams pursuing more or less the same idea, you should ask yourself if there isn’t another sector that isn’t quite so crowded. This is especially true if there’s been some sort of catalyzing event that got “everyone” buzzing in startup world, for example, the advent of Groupon. One reasonable litmus test: if you find yourself continually defending the differentiation of your idea by narrowing it to smaller and smaller markets and use cases, you’re probably in an overcrowded space.

3. Don’t think too small.

Basic math again. Startups with small ideas are probably about as likely to fail or succeed as startups with big ideas. So all things being equal, you may as well choose a startup with … Next Page »

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Joe Chung is Managing Director at Redstar Ventures, a company that creates companies, taking them from the earliest stages of ideation and growing them through their first institutional funding rounds and beyond. Joe tweets from @joechung. Follow @joechung

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  • Interesting that Apple broke all of those rules, even #1. Everyone thought PCs would remain a hobbyist product when Apple got started. But Steve Jobs was thinking different…

  • Chris, not sure I totally agree… Even as a hobby, personal computer kits were growing well as I recall! I remember buying my first heathkit and I was saving up for a rockwell aim way back when! And of course apple was actually founded at the beginning of one the greatest rising tides ever, though it’s doubtful that steve and woz knew that at the time. Also hard to argue that they were thinking too small! But yeah tons of awesome companies are exceptions – there’s no magic formula!

    JC

  • Chris Noble

    Quite right Joe. It is interesting to see how Apple got started though — didn’t raise any money, just a couple of guys making and selling stuff one unit at a time and hand to mouth in a niche market. The investors came later. A good lesson for budding entrepreneurs.

  • Justin

    Interesting list but perhaps the most important item was left off: Pick a problem and solve it. Too many start-ups are built around interesting ideas but don’t actually solve a problem or provide any meaningful value (read: something worth paying for) to the customer (or they try to solve too many problems at once, or shift to other problems along the way). So, find the problem that your product is a valuable solution for, study it from every angle and then execute, execute, execute.

  • Justin – hey, this article was how NOT to start a startup… “Do Something Useful” is going to be in my next post! :) All kidding aside, you bring up an excellent point. All successful businesses meet a true quantifiable need. Sometimes that need is harder to see / understand (witness the early days of Twitter). Even those lucky quick acquisitions had a well articulated problem that an acquirer believed was worth solving.

    • Gabor Borjan

      Thanks Joe for this post. Without reading your post BEFORE we started our project, we tried to avoid these things, as you mentioned it.
      Now we have a project, even with working prototypes, but we identified another problem: even our team is international /but small/, we cannot break-out from our small country.. and our project and product is not just for a single small country..

  • Justin

    Hah, so reword my entire post and precede it all with, “Don’t not do the following: “. :)

    Looking forward to your next article!

    Justin