Entrepreneurial autopsies
Entrepreneurial ideas come and go. Some I don’t give a second thought to. Others I commence market research for, examine the competitive landscape and explore the feasibility for development. This can be time consuming, and has yet to have produced any tangible, commercialized product.
I figure it’s about time I devote the time I would spend to exploiting my existing repertoire of knowledge to develop an idea, to exploring parsimonious, efficient techniques for assessing viability.
In my search I found [Autopsy.io], a startup graveyard. Founders describe why their startups failed, concisely. It made me think about my past startup ideas and why they haven’t flied.
I’m going to work that out, put it in a spreadsheet and regress to whatever problem keeps popping up—then, I’ll work on improving my subject matter knowledge in that domain—for example, if its the feasibility of implementing with existing technology—I might learn more about the current technological landscape in general. Or, more about existing services for investors, if my product is a service for investors, like my last startup idea, which I have autopsied in detail here
I just thought I’d share my general strategy for anyone who’d want to copy this procedure for startup autopsy. Please use this space to suggest other appropriate diagnostic methods.
edit 1: Thanks for pointing out the typos :)
‘Charge for something and make more than you spend’ - Marco Arment, Founder of Instapaper
I would like to say entrepreneurship means different things. The plumber I call when my pipes are clogged is definitely an entrepreneur—he is self-employed and employs a help, he does not come alone. Yet there is not much idea behind it. It is just simply so that in these kinds of professions self-employment is more common than working for large corporations.
I have the impression that if you are approaching it from a Silicon Valley / Paul Grahamesque direction, what you call entrepreneurship is that subset of it that scales up easily, this seems to be the most important determining factor. Web based software, provided as a service and not as a purchasable shrinkwrap package, is the canonical example because it is relatively easy, free / cheap and barrier-free for theoretically even billions of people to start using something like Hipmunk or Beeminder. Their crucial feature is scaling up.
I think scaling up is why in such fields entrepreneurial ideas are dime a dozen, because of the ease of scaling means really high potential payoff and it means really intense competition—not only for customers but also e.g. for co-founders.
Compare opening a pizzeria in a small town. How much idea you need for that? Chances are there isn’t a competitor at all and then you offer the basic types, if you have a competitor you just spend a few hours googling up some less usual but delicious sounding recipes.
The point is, if you fail at that pizzeria, you are doing something wrong. If you fail at that insanely competitive infinitely-scalable market, then it is not a failure and has no special reason, it is just like not winning the Olympics: someone was better, that is all.
If you can make a profit opening a small restaurant, then a large startup (this is the word for a scalable business) will try to do that in a way that scales (franchising). Restaurants fail far more often than they succeed, and I think you’re underestimating the risk of starting a small business.
I don’t see that here. Franchising is largely an American habit, probably due to many restaurants, even real ones (steakhouses) having semi-fast-food type approaches that lend themselves easily to being broken down to procedures and rules that can be trained to anyone. Most restaurants I see here don’t have these semi-industrial procedures, they are typically based on the personal touch, the owner cooking or training a cook in person, by mentoring, without being able to break that down into written rules that can be trained by someone else in a different city. The interior design and even the building itself plays a non-scalable role as well i.e. if you open a fish restaurant with a fisherman’s theme and put 100 years old fishing instruments on the wall, you cannot really blow up into a chain of 50 restaurants, in that case the decoration will be made in some kind of a factory and the whole thing having a fake vibe. In short, their appeal is largely in their uniqueness, being in a specific historical building, having a specific semi-historical or not but generally unique interior, with the personal touch of the owner’s cooking or personally trained cook and all that.
I figure the kind of restaurant that could be potentially turned into a franchise could easily fail because it would not have this appeal of uniqueness. It would be just a place to eat at… not the whole experience of time-travel or travel to a distant place in the case of authentic ethnic ones.
Point, and yet , over 60% of restaurants fail in the first 3 years. In terms of small businesses over all, 90% fail in the first five years. It’s true that the percentage of businesses that become unicorns is much, much smaller than 10%; either way, I think calling any business easy, whether startup or small business, is drastically overstating the odds of success.
My point is that there seems to be a relationship between scalability and failure. Due to scalable offers facing heavy competition and lacking uniqueness / niche. If you have the only Indian restaurant in the town, the you have checked that a significant % of the population likes curry, how exactly can you fail? Aside from doing obviously dumb things like delivering food cold or oversalted or burnt or unreasonably high prices, as long as it is managed according to basic common sense it cannot really fail. But if you have opened the 537th generic steakhouse in New York, of course there is a huge chance to fail—but if not, you could scale that up into a franchise.
To go back to software examples, let’s say you built a custom order processing software for a steel mill in Sweden with the GUI in that language and then look into turning it into a product. Your target market may not be bigger than 100 firms, but if it works right it is almost certain you will have some sales because it is what that niche needs and there is not much of a competition.
A different way to look at scalability and failure would be disproportionality between costs and sales. Suppose you sell downloadable software, delivering each additional copy has near zero cost, the first X sales recover your costs and then each $49.99 copy sold is pure profits (not taking stuff like support into account), this is the capitalist wet dream. However, due to the wet dream effect it attracts competition and if you aim at a large market you cannot really focus on a small niche with unique needs, which means you either cannot fully satisfy your target markets many needs, just a subset, or if yes it takes a huge investment under the hood—like the Google search engine, just one simple field, but how much behind it… my above example of a software for a specific industry, language, culture does not only not have a huge market but each additional sales will not have zero costs because they will request customization. But they will be really happy with the results, and hopefully they know it or you can convince them that they will be happy with it, which really really helps making sales.
Yes, I think we’re in agreement here. I agree that a startup is much harder than small business, for reasons you mentioned here, and others. I think you would agree that a small business is also hard, and success is far from guaranteed :).
Wait, the word startup is defined as a scalable subset of small business? I thought it is just a fashionable term for newly established small businesses...
Paul Graham:
Okay, then it is defined so.
There’s actually several competing definitions of startup, from Steve Blanks “An organization in search of a business model” to the dictionary “A newly created business”. However, the common silicon valley parlance is that a startup is a business created for growth and scale.
I find it useful to use the term “startup” for Paul Grahamesque “startups” and “small-business” for pizzaria-esque “small-businesses.”
I feel like the abstract problem here is that too many people decide first they want to be an entrepreneur, and then search around for ideas and projects to work on. Most of the great tech companies started with a project that suddenly, almost unexpectedly, started to get a lot of traction before the founders were even working on it full-time. Google, Yahoo and Facebook were all dorm room projects. AirBNB was founded because Chesky and Gebbia needed help paying the bills, so they rented out their living room. Steve Wozniak built the Apple I while still an employee at HP.
This approach to startup work is probably better than the “jump in and go” approach, because it means the founders are never desperate. If your dorm room project doesn’t take off, you can just go back and finish your degree. If you’re working part time as a consultant and part time as an entrepreneur, you have an infinite runway because your consulting work pays the bills.
For reference, I know people who are professional entrepreneurs in the sense of doing it the other way around than you say, but they are not in a software/startup kind of business. They usually do things like open hot dog stands and similar easy fast food, open small bars, start a drywall business because even a non-professional manager can judge the quality of the work (horizontal? vertical? right angle? then it is OK) and search for similar ideas. I think it is partly about having skills like negotiation and organization so basically their profits can be interpreted as representing their more timid employees who don’t have the cojones to argue down the prices of a vendor and then also demand a longer payment term, partly swimming in the small market gaps of large businesses, and partly about being bolder about tax avoidance than big businesses.
Your first sentence doesn’t seem to me to match the rest. It seems like much stronger advice, objecting to many more founders. The rest is about not committing to one project too early, while the first sounds like a much stronger advice against not being an entrepreneur for the sake of being an entrepreneur. Steve Jobs wanted to be an entrepreneur and tried a lot of things. Similarly, I think Zuckerberg wanted to be an entrepreneur, but it’s harder to tell because his first commercial project was successful.
Also, some people complain that the “infinite runway” makes people fail to give up on bad projects. And, worse, to concentrate on the parts that interest them, rather than tackling a full product with sales and marketing.
(you have a typo in your title)
Depending slightly on how you define success, there’s not a good chance of being successful in the start up market. But it seems like you’re coming up with solutions to a problem you haven’t defined well.
What’s your goal here? Why are you putting the effort into doing this market research? Into figuring out ways to assess viability of ideas? Is it just for fun? For the joy of exploring ideas? Or are you looking to create a job for yourself? To build a billion-dollar empire? How do you define success?
In short, why?
Within the context of online businesses, we have some stats on failure mode frequency, which strongly reflects my own priors, and the ~200 startup founders I’ve talked with to date (source: Quora )
A few thoughts here:
-There are many more ways to fail with a business than there are to succeed—unfathomably more. I tend to think that a strategy of “cross off all the possible failure modes, until you’re left with only success” is a flawed strategy for that reason.
-That’s also the reason that historically and empirically, entrepreneurs who succeed tend to have prior experience with their market through their employment. More recently, “lean startup” techniques have come about that allow you to gain a deep understanding of the market through rapid testing, market research and talking to your market. I recommend you read Running Lean by Ash Maurya and The Startup Owners Manual by Steve Blank for more on that.
-In terms of first principles, there’s also been a ton of prior work done and no need to invent the wheel. There’s TONS of work out there on business strategy and what makes a succesfull business, but I think if you read Crossing the Chasm by Clayton Christensen, and The Future is Predictable by Simon Wardley, You’ll be set.
There are two situations:
I had a startup up and running, but then it failed;
I had an idea about a startup, but then it didn’t happen.
These are very different situations.
...or three before breakfast...
Needs to draw a line somewhere really. I would say, an idea is serious from the moment there is a more or less written cash-flow plan.
Do you know what procedures VC’s use to assess viability? They’re not the final word on the subject of course, but it seems the obvious starting point.