6 Reasons why startup teams fail

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A lot of the startup advice that you see online in the Twitter and newsletter sphere are focused on two things: you’ll succeed if you have the right product, or you’ll succeed if you have the right marketing. Depending on who’s talking, they two are usually in competition: one side will say that your marketing is wasted if your product doesn’t solve a problem for your customers. The other side will say that there’s no use in building a great product if you don’t know how to efficiently market it

Now, these are of course both true statements, but they’re also simplifications. As someone who has been around startups big and small for more than a decade, there are a lot of reasons why a startup can fail or succeed, and to pin it all on product and marketing is to miss a lot of the nuances and complexities that make up the entire journey towards a successful business or closed doors.

Some startups succeed because they have a fantastic team. Others fail because they have the opposite.

A group of people researching why startup teams fail
Nothing is more complex than a groups of people: your job is to make all these brains function together – not a small task!

What is a startup exactly? Well, unless you’re doing it all on your own, it’s a group of people working together to introduce and maintain some sort of new product or service to the world. And nothing in this world, ladies and gentlemen, is more complex than a group of people. Our brains are a ridiculously complicated piece of biological machinery that have evolved over millions of years to do one thing: survive and reproduce. One of the brilliant insights this soft lump of tissue had along the way was the idea of social instincts. It makes sense: we’re safer and more likely to find a partner within a group of people where we fit in.

But – whether we like it or not, we are completely and slavishly obsessed about our social standing and how we fit into this group. It’s the source of fantastic feelings like love, pride, comradery and accomplishment, but it also triggers feelings of jealousy, resentment, rejection, loss of social status and anger. These feelings are all just chemistry going on inside the skull of each one of us, but for a startup they can lead to inspiring success or destructive conflict and everything in between. Why our brains can’t simply robotically do the right thing instead of manipulating our conscious selves into actions us with oscillating feelings of euphoria and torment is a question for wiser people than myself, but alas, we’re stuck with what we have: a collection of brains that can conquer the world or throw away all its potential in petty disagreements.

Ok, so where am I going with this? You probably guessed it by now. In the words of famous entrepreneur Jane Austen: it is a truth universally acknowledged that a startup must be in want of social harmony if it is to succeed. Or in other words: if you don’t have a team that works well together, you are going to fail.

This is obvious to most, but still it is a surprisingly frequent source of startup failure. People, and friends in particular, tend to vastly underestimate how much social standing, influence, money and recognition can throw otherwise good relationships into disarray. And a young startup typically does not survive even a single conflict, if it runs deep enough: succeeding requires the collective focus of every member. 

What to do? Most conflict is about communication. As long as there is proactive, transparent communication you can set your team up to avoid conflicts down the road and keep your eye on the ball.

Let’s have a look at why startup teams fail and what you can do to safeguard the social harmony of your team:

1. Recognise that startups are chaotic and unpredictable

There’s a reason the tech world has moved away from detailed business plans: they are never right.

In the words of Bruce Lee «[…] be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot, it becomes the teapot. Now, water can flow or it can crash. Be water, my friend.»

Why is that relevant? Founders typically have a vision for their startup. That vision can feel aligned in the beginning, but as the messy reality of startup life kicks in, the visions can start to diverge: one member might embrace a new direction while another rigidly sticks to the original plan. It doesn’ matter who’s right: what matters is that there’s a potential source of disagreement. Visions and strategies change for an infinite number of reasons and the only certainty is uncertainty. 

Agree early on that a startup needs to be and remain like water: an ever-changing thing that becomes whatever it needs to be. Even key principles loudly communicated to customers sometimes need to change for the business to thrive.  

A culture of rigidity is rarely an asset: embrace change and fluidity and make sure everyone is onboard for it. If a change in strategy or vision is stepping on someone’s toes, you don’t have the right culture – but believe me, it happens all the time.

2. Don’t hand out key roles early on

Founding teams tend to obsess over roles: who is CEO? SMO? CTO? COO? My point here is not to ridicule C-level positions in a three-person company but to emphasize the last point: things change, and rigid roles do not help anyone.

Here’s what I mean by that: one of, if not the most important asset that growth gives you access to is people. If you and two friends are starting a new company, you can probably not hire seasoned professionals to fill key positions yet: that’s a privilege that comes later as revenue/funding and reputation gives access to a new marketplace of talent. At this stage in your company’s life cycle, you need that talent onboard if you are to grow out of the garage and into a mature business.

You desperately need an efficient sales organization, but… you already have a Director of Sales: Mark, from high school, who used to work as an account manager. We have another potential source of disagreement: Mark considers himself the head of sales in your young organization and sees his position threatened as his fellow founders start browsing the talent pool for a more experienced sales leader.

Agree early on that your job is to build a company that consists of the highest quality set of moving parts accessible: that includes its key hires. Regardless of how you allocate responsibilities in the beginning, it’s unlikely that every member of your team is the best at what they do. Mark can be an excellent sales person, but is he as capable at structuring an effective sales organization as a seasoned executive with a 20 year proven track record? Most likely not.

The point is not that the founding team should never end up in key positions: sometimes that makes good sense. But this decision does not need to be made early on, and should be considered as fluid as everything else: if growth requires new talent to replace old one, then that’s what you should do. That goes for the CEO as well: not every founder is cut out to run a large company. Sometimes the reins need to be left over to someone else, but that process should not lead the company into ruin because of inner conflict.

Don’t hand out key positions early on. Rather, hand out responsibilities, with the shared acceptance that access to even more talented people is an enormous asset that you’ll get access to later on. Even if that displaces the social status, privileges and responsibilities of an existing team member temporarily.

What you’ll all end up with is ownership in a successful company. 

3. See novel influences and authority as an asset

As you grow the company, new stakeholders will emerge: key employees, investors, board members and important clients will all have a seat at the table that used to house just you and your friends. What used to feel fun can feel more like a chore over time and tasks, responsibilities and strategic changes can be forced upon you and your co-founders by people who had no hand in the founding of the company. 

Board meeting in a startup
New people of authority entering the company can be seen as a threat – but with the right culture it should be seen as an asset and opportunity for learning and growth.

The best founders I’ve known are those that see this as an opportunity: succeeding with a startup is an almost unimaginable journey of personal growth. Getting the right employees, board members and investors on board can mean tremendous opportunity for professional development and invaluable mentorship, but only if you remain open to it. Take Steve Jobs, one of the most influential company founders in history: most will agree that he was nowhere close to mature enough to run a company during his first stint at Apple, and his hubris resulted in him having to leave the company. The easy and probably incorrect conclusion one could draw from seeing his massive success later on is that Apple made a mistake firing him as he turned out to be so successful later: I’d disagree. Jobs was certainly a talented company builder, but it was his access to a number of mentors and his years of trying and failing with Next that truly developed him as a leader. It was not until his second round at Apple where his skill level truly matched his ambitions, and he ended up turning a near-bankrupt Apple into the most valuable company in the world. Let’s not see his business acumen as some sort of inborn talent: his quirky personality was as much a hindrance as an asset to him, as his early years showed: by attracting great senior people and through a life-long openness to learn from his mentors, he grew into an admired business leader.

Build a culture where experience and authority is considered an opportunity for learning and growth, not a threat to the current standing of existing employees. Yes, influence and the chain of command will change over time, sometimes not to your personal benefit. Your focus and that of your team should be to see the reward: a once-in-a-lifetime journey of personal development and a successful company in good hands.

4. Be careful with equity and stock options early on

How much of the company do you own? How much are you willing to sell to raise money? How much, if anything, are you willing to give up to get key people onboard early on?

A lot of founders underestimate just how complicated equity and stock options are, and they can lead to frustration and disagreements down the road. I’ve seen companies spend months in their vulnerable pre-launch phase discussing back and forth how the ownership of the company should be structured long before it’s worth a single cent. In most cases, this too is going to change down the road if your company lives long enough: these things simply rarely go as planned, because the financial structure of a growing company is a lot more complex than most founders realize. My advice is to go for simplicity. Have a clearly defined founding team that each owns a clearly defined part of the company as you start out and then leave it at that. See this as a basis for later negotiations as new owners come into the picture.

Make sure everyone knows how much they own and solve any disagreements before the documents are signed. Don’t throw out promises of future equity and stock options like it’s candy – the more complicated you make it, the more potential for disagreement you’ll have later. As your company grows, you can start introducing packages that are clearly and soundly structured by someone who knows what they’re doing. But early on, agree and accept that company ownership too will change over time and make sure everyone agrees that sometimes that means giving up a part of your own share to balance things out.

5. Recognize conflicts and their damaging potential

One single interpersonal conflict can easily run a young company into the ground. That’s not just a potential risk, but a very possible scenario. Agree on a culture that is able to recognize the damaging potential that conflicts have and deal with them early on. Get everything out in the open and discuss it before it has time to grow into something worse: the worst kind of conflict is the one that is discussed between members of a group in secrecy because there’s no culture to share it.

The goal is not to have a company without disagreements: that would be a rigid organization indeed. It is to be mindful of conflicts that turn harmful. Keep in mind our social nature: the perceived loss of social status and influence can lead to feelings of resentment and jealousy, and boy do we like to talk trash when we feel unjustly treated. Luckily there’s an easy fix: conversation.

Agree that a conflict can do great harm to your common project and that it’s in your interest to solve it. Be attentive, understanding and flexible, and make it clear that you expect the same from everyone else, and you’ll get things sorted out before they turn sour.

6. Friends should sometimes be just that

Starting a company with your friends can be a fantastic adventure and there’s no reason to argue that it can never be successful. But, we usually only hear about the winners. I’ve seen close friendships end in tragic disputes over trivial business decisions and families torn apart over money lost. Being friends or siblings can mean you know each other’s strengths and weaknesses and work well together, but sometimes you’ll learn things about each other that you wish you hadn’t. 

Some people like the idea of a startup more than the actual work. Some are really eager until they have to put money on the table. Some are thin-skinned and frequent sources of conflict. Some are just not as good at their job as they claimed and some have psychological issues that become clear once the stressful reality of founding a company sets in.

Don’t think that this will never happen to your circle of friends: I’ve never met a founding team that believed their startup would lead to the end of their friendship, but it still happens. The thought of a startup can be intoxicating, but it deserves one final conversation before you decide to do it together:

  • Does everyone truly believe in the project?
  • Is everyone ready to do the work?
  • Does everyone accept the risk of leaving secure positions for a startup?
  • Is everyone happy with the allocation of ownership and responsibility?
  • Does everyone accept that this will be their full-time job (and more) for years to come

Set a low threshold for pulling out: it’s much better to have it settled early on and be left with a team that are truly onboard to build something great.

People in groups can build truly amazing things. But a startup is a messy chaos of ever-shifting priorities, strategies and stakeholders: take care of each other as a functioning team. If you fail at that, you will fail at everything else, no matter how good your product or marketing is.

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