Why startups fail, and how to fix it

When you survey startup failures you reach a surprising conclusion – many people still blame a lack of engineering talent.

In my experience, technical failures stem from the supply chain being unable to supply the tools to meet the vision of the engineers – which isn’t a gap in engineering talent, it’s a failure of product management.

Think of the world in which Steve Jobs started to develop the iPod in the 1990s. What he wanted to build was the iPhone; ideally the iPad. At then-current prices for parts and production the retail price would never fly. An iPad would have cost as much as an engineering workstation – $10,000. That wasn’t going to work when your target was high school and college kids willing to pay only pennies a song.

Do the math. Check the inflation-adjusted price of the iPod today. It costs more than today’s iPhones and iPads. Why? Because economies of scale created by the iPod have driven down the piece-part costs. The skills and know-how among the manufacturers are now considerably higher than they were when Apple first dropped iPod drawings on the desks of MP3 manufacturers.

Apple had product managers and they had a direct pipeline to the top. Steve Jobs was a very sharp product manager himself. That gives you an idea of how critical the role of good product management is, and how much authority it needs to have.

Closely related to this observation is how much startups spend on marketing and sales. A Nation of Soft Sellers and its follow up, Canadian Tech Tortoises, document how Canadian startups spend less on marketing and sales than U.S. competitors at the same stage of development. Those are the two reports I referred to in my opening.

Why is marketing and sales spend so important? Most Canadian startups are B2B startups and in the B2B community there is no impulse buying. The more strategic your product, the more important it is to massage the fractious functional groups of your target customer into alignment. Yes, you need a solid inbound marketing program. That gets you found and builds enough reputation to get invited to quote. That won’t close the deal.

For every RFP requirement there are going to be undocumented political requirements. To find these out, you still need face time.

A low loonie versus the greenback enables Canadian engineers to punch above their weight. And it makes underspending on marketing and sales even worse. Everybody incurs travel, living and promotional expenses around developing relationships with key people at strategic prospects. Even if Canadian companies match spending dollar for dollar, those expenses are in greenbacks and ForEx means your actual costs are a third higher than your U.S. compettors’.

In Japan you need to have an in-country office. It must be staffed by Japanese nationals. That’s an inescapable fact of life for doing business in Japan. It’s also true of doing business in the E.U. And the way things are going it’s going to be the norm for business in the U.S. You overlook that cost at your peril — at least if you want to succeed.

Geoff Foulds
Geoff Foulds
What fascinates me are the edges. And nowhere are the edges edgier… the stakes higher… than startups. There are plenty of sources of friction, compression and tension among founders and financiers, engineers and marketeers. How do you mesh all the edges so they transmit power even when loads are heavy? That’s what I write about.

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Jim Love, Chief Content Officer, IT World Canada

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