The Survival Race Across the Desert
Most startups do not fail because of a lack of merit related to their innovation.
Think about it. For a startup to be measured as one of the 95% that failed, they need to have first made the radar. That means that, in order to be measured, the startup has to have first passed some kind of ‘radar-making’ milestone.
The startups that fail have already gone through someone’s due-diligence. They have already shown the value of their innovation and raised some kind of capital.
No, startups don’t fail because their invention was wrong. They fail because of operational failure.
The journey of a startup can best be compared to a survival race across the desert. At each funding round you are given a tank of gas, and your operational mission is to cross the desert to the next checkpoint, where you will be given another tank of gas. If you run out of gas before you get there, you die. No-one will give you more fuel – more capital – if you are unable to complete a sprint across the desert, from one funding round to the next.
I often shudder when I think about how many incredible innovations are out there, rusting in the desert of fallen startups. Probably enough to have healed the world several times over.
Why is this so?
It comes down to team. More specifically, it comes down to the team as business operators.
A business is a vehicle. It is the vehicle that carries an innovation from the table-top of an idea out into the market. It is the vehicle that takes a local innovation global, and nurtures it to scale. And it is a vehicle that multiplies its shareholder (capital) value.
A funding round is the framing of an agreement formula between the business operators (the startup team) and the investors. It says that with X amount of capital, the team commits to operating the business to a certain higher level of scale, carrying the product that much further into the market, and increasing the company’s shareholder value.
If the team fails to reach the agreed-upon milestones with the agreed-upon amount of cash, their credibility to make the next sprint gets zeroed out.
Yes, sometimes ‘close enough’ can get you some bridge capital to close the gap; but that is only if there is enough operational success to justify that extra boost.
So what is a founder or startup leader to do if he or she is caught in the desert, and realizes that they probably will not make the next milestone with the capital they have in the tank?
Let’s understand what kind of business we are in, and the levers we have in our control room.
The Business We All Are In
We are all in the same business. If you step outside in any city around the world, and look up at every office window, behind each window everyone is in the same business. In fact, it does not matter if you are a mom-and-pop grocery, a startup, or a multi-national corporation.
What business are we all in?
The number one answer is: “Making money”; but this is not correct.
We are all in the business of creating transactions that increase shareholder value.
Think about it. YouTube was acquired by Google in 2006 for $1.65 billion dollars, and at that time they still had not implemented any monetization strategy. In fact, by the time they introduced ads through the YouTube Partner Program in 2007, the company was estimated to be worth between $2 billion – $3 billion dollars.
How did they achieve this fantastic shareholder value? They achieved it primarily by driving two types of transactions: Content creators uploading videos, and content consumers watching those videos. YouTube focused on creating two types of transactions, and by doing so created billions of dollars in shareholder value.
This is the business everyone is in. Mom and Pop with their mini-market, and the CEO of IBM. A shareholder is any stakeholder or owner of any business. And creating transactions that increase shareholder value is the business we are all in.
This shift in perspective is critical to your success. It fundamentally changes the way you think about and strategize the scale-up of your startup. There is a very specific and limited set of levers that drive up shareholder value, and money (new capital) is only one of them. Understanding the levers, and pulling the right one at the right time, is the essence of ‘captaining’ your ship to the sea of success.
~ Up Next: The Five Levers that Create Shareholder Value ~