7 characteristics of the failure of Internet start-up companies

Bjoern Lasse Herrmann, co-founder of the Venture accelerator Blackbox, has conducted a research project "entrepreneurial Genome", which aims to reveal the workings of startups (click here to see the highlights of the report). Their first report released more than 650 questionnaires for Silicon Valley start-ups, revealing 7 features of the failed Internet start-up companies.

In the report, the development cycle of the start-up company is divided into four stages: exploratory phase, verification stage, efficiency promotion stage and expansion stage.

7 major features of Internet startups failure:

If you are determined to start a business, you must wholeheartedly. It is difficult to start from scratch, often need to go all out to succeed. Temporary part-time work is acceptable, but it will still be a big hindrance to better performance and potential.

We often hear people say that they will work part-time before raising money. The chart below shows that the average amount of money raised by a part-time entrepreneur is 24 times times less than that of a full-time job entrepreneur. Moreover, it is difficult for part-time entrepreneurs to maintain enough activity frequency (such as product updates, marketing) to promote the growth of the number of users, the market is often used to verify that the product is attractive enough. Full-time work is particularly important for product start-ups that need to reach the critical mass of the user to reflect the network effect (for example, everyone, Weibo).

If you've decided to start your business full-time, the first big challenge is to convince others to join full-time. If you can't convince a partner, or if you think you can do it alone, it's a strong signal that the company is unlikely to succeed. However, entrepreneurship is not a good job, the number of start-up teams are often 2-3.

One independent founder has raised an average of 50% less than the founding team of 2-3. One reason is that during the fundraising period, the founders have to take care of products, business and fundraising, and the energy must be dispersed.

The average user growth rate for individual founders was 290% lower than the founding team of 2-3, and the likelihood of a 16% higher was premature.

More than 42% of startups that are 20% slower than the average time to reach the expansion stage are single founders.

If you start a technology company but no one in the entrepreneurial team understands technology, it's unlikely to succeed. Unless your company is in a sales-oriented industry, the founding team should have at least 1/3 knowledge of technology, preferably half the way. Of course, do not too much, three monks have no water to drink the truth we all understand.

The first problem with no technicians in the founding team is that you don't have the people who control the product. The founder of the business is unable to control the product because of the ignorance of the code, and the employees and the consultants cannot control the product because they are just working. As a result, companies without technology co-founders have twice times the opportunity to move prematurely into the expansion phase. Their users are also growing at a lower rate of 3-5 times, and they need to enter the expansion phase for an average of 7-8 months longer.

Once the formation of the entrepreneurial team, we should seize the market and create products that meet the team's advantages.

We divide internet start-ups into three categories in terms of market development and user expansion, each of which has different requirements for time, skills, and funding.

Type 1 Autonomous type
Common features: Self-Service services, natural access to users, user-oriented, product-centric, fast implementation, often have the ability to greatly improve the efficiency of the automated process

Examples: Google, Dropbox, Eventbrite, Slideshare, Mint, Groupon, Pandora, Kickstarter, Zynga, Playdom, ModCloth, Chegg, Powerset , Box.net, Basecamp, Hipmunk, OpenTable, etc.

Type 1.1 Social Transformation
Common characteristics: Self-Service services, natural access to users, the critical quality of network effects, runaway user growth, winner-take-all market environment, complex user experience, network effects, to create new user social interaction mode for the typical

Examples: Ebay, OkCupid, Skype, Airbnb, Craigslist, Etsy, IMVU, Flickr, LinkedIn, Yelp, Aardvark, Facebook, Twitter, Foursquare, Youtube,dailybooth,mechanical Turk,myyearbook,prosper,paypal,quora,hunch.

Type 2 Integration type
Common features: Internal sales Reps drive customer outreach, high certainty, product-centric, early-stage profitability, small to medium sized enterprises, smaller markets, often inspired by innovative internet services, adapted to small business

Examples: Pbworks,uservoice,kissmetrics,mixpanel,dimdim,hubspot,marketo xignite, Zendesk, GetSatisfaction, Flowtown, etc.

Type 3 Challenge Type
Common characteristics: Enterprise-oriented sales, to (large) customers rely on a high degree of complexity but the need for a clear and stringent market, the sales process is repeatable

Examples: Oracle, Salesforce, MySQL, Redhat, Jive, Ariba, Rapleaf, Involver, BazaarVoice, Atlassian, Buddymedia, Palantir, NetSuite, passkey, WorkDay, Apptio, Zuora, Cloudera, Splunk, Successfactor, Yammer, etc.

The following graphs show that a business-focused founding team is more likely to succeed in startups that need to be marketed to the enterprise, while a technology-focused team makes self-service-type internet start-ups more likely to succeed. The balanced team did a good job in addition to the entrepreneurial (challenging) companies that needed a lot of business-oriented sales.

In our data, 35% of the business-oriented founding team chose "autonomous" before the product adapted to the market, but only 12% of the business-focused founding teams chose "autonomous" after the product was adapted to the market. This shows that the commercial-oriented founding team is not too adaptable to "autonomous" start-up companies.

When you find the perfect founding team and have the products and markets that are in line with your team's strengths, the next big challenge will be to remain flexible on the way to achieving your goals while you are determined to make your dreams come true. It is highly likely that startups need to make big changes to their business. When real-world feedback shows that something is not right, you have to adjust.

However, too often the business turn will keep you in a circle. We found that the 1-2-turn founders were 1 time times more likely to grow than those who had never turned or shifted to 3 or more, and that the likelihood of an early expansion was lower by 48% (we told the founders of the questionnaire to turn the big changes in the business into "steering" understanding).

Business Steering (pivot) is often a decision made in the context of incomplete and extremely uncertain information. But spending time communicating with users to get feedback can greatly improve the probability of making the right decision. We found that companies that tracked user metrics and listened to users were growing 4 times times faster than companies.

before market verification

Finally, one of the most critical mistakes we've found is that the founders are anxious to expand prematurely before market validation and user expansion processes are optimized. If they raise a lot of money and have a strong will, the result is often a slow death. If neither is true, it is likely to die soon.

The following two charts show that startups that wait until the product is fit for the market to expand are 3.2 times times more likely to raise money than premature companies, 1.5 times times faster than the latter. Interestingly, companies that have prematurely expanded as much as they did in time to expand, but the effect was discounted. Haste。

Via Venturebeat

Reprint Please specify: article from 36 Krypton