Startup Success Is All About What You Don’t Do
All entrepreneurs, especially first-time entrepreneurs, spend an inordinate amount of time chasing down opportunities that never materialize. A tricky lesson I’ve learned in over 20 years as an entrepreneur is that the better the entrepreneur, the more opportunities they say “no” to.
I realized that this doesn’t happen only because the successful entrepreneur has the cachet (and the cash) to be more selective than the average entrepreneur. Rather, they’ve developed a sense of when to hold their ground against the lure of something that may look fruitful or even necessary in the short term, but will be a drag on business in the long term.
To put it another way, the ability to be discerning isn’t something that comes from success; it’s something that creates success.
If success came about solely due to hard work, we’d have a lot more successful startups. The vast majority of founders work crazy hard. The problem is they usually end up working crazy hard on the wrong thing.
Hard work actually becomes a detriment when it’s focused in the wrong direction. Moreover, hard work can sometimes be a misguided attempt to right a ship that was going to veer off course no matter what.
The wrong thing can manifest itself in a number of ways. Below are some of the most frequent temptations and some strategies for when, why, and how to say no.
Signing a large customer that’s more risk than reward
This is by far the most frequent mistake because it’s the hardest opportunity to say no to. Every early stage startup should take on every customer they can, for any work, at any price point. Eventually, though, this behavior needs to stop, or the losses will strangle the company. But strangely, a lot of founders never get to the point where they start saying no; instead, they wind up taking on more and more unprofitable jobs.
One of the hardest things I ever had to do as an entrepreneur was turn down a $3 million deal with a Fortune 500 customer. It would have been more than 100 percent of our run rate at the time, but the customer was toxic. We had been running a pilot with them that should have worked, but it was a disaster on every front.
Using their strength and size against ours, they were asking for too much, limiting our benefit, and demanding concessions at every turn. As negotiations stretched on and sucked the productivity, time and energy out of our entire team, we made the decision to walk away. I broke a relationship in the process, but the company survived, thrived and moved forward.
Growth will always strain your people. A leader must have the resolve to turn down golden opportunities if they threaten to shear the company’s culture and team. Always err on the side of your team.
Taking on a deal that’s too far out of scope
In somewhat the same manner, changing who you are to fit the needs of one large customer can also be a mistake.
There are times when shifting scope to fit the needs of a new, deep-pocketed customer is mandatory, specifically when doing so might save your company. There are other times when a customer is telling you something you need to know — that you might be heading in the wrong direction.
Those are just a couple of the reasons why it makes sense to stay open to ideas when listening to your customers, including any big, shiny new customers that are interested in something that isn’t exactly what you’re offering, but close.
A lot of entrepreneurs will go so far as to calculate the ROI on the changes needed to meet the new customer’s needs and stop there. But it’s just as important in those situations to consider the long-term effects of things like technical debt, ongoing support, lack of reuse, and the size of the addressable market those customizations can serve.
Don’t let your company devolve into a mere extension of a larger company. Your company exists to solve a problem, not to serve another organization. When your company starts to feel like the latter, it’s time to say no.
Focusing on non-revenue-generating tasks
Not every moment of startup life is about generating revenue. But when you’re in a leadership position at a startup, ideas will come at you from every corner, including the corners of your own brain.
Once a week, take every idea that gets to your desk and meet with your top people to discuss and prioritize all of them. The main metric for prioritization should be revenue, and that metric should slide along the scale of “How quickly will the revenue from this idea be realized?”
Oftentimes, saying no to a good idea that doesn’t have a solid revenue justification forces the sharpening of that idea. In other words, an idea might come with the promise of: “This could generate $10 million over the next three years.” When rejected, a modified version of that idea might now hold the promise of: “This will generate $100K next month, $1 million over the next 12 months and $10 million over the next three years.”
If you can’t get that kind of linear traction with the idea, say no.
Considering enhancements that are rooted in anecdotal reasoning
Enhancement requests will also come at you frequently — from customers, from stakeholders, even from your internal team. Those requests usually wind up sounding something like this: “We just lost another customer because our product doesn’t do X!”
A long time ago, a colleague of mine taught me to ask the five whys, an exercise especially helpful for requests like these.
- Why did we lose the customer?
Because the customer wanted machine learning.
- Why did they want machine learning?
Because it would automate a bunch of tasks they need to do.
- Why doesn’t our product accomplish the same thing?
Because it’s too hard to use.
- Why is it too hard to use?
Because they weren’t onboarded correctly.
- Over the last 12 months, how many of our customers haven’t been onboarded correctly, and how many of those have asked for machine learning?
Two. This is one of them.
Instead of spending a fortune integrating machine learning, it might make sense to first take a day to review your onboarding.
This is just a made-up example from my world. But regardless of what you do and how you sell it, the five whys will usually lead you away from the anecdotal and into the factual. The enhancement request might even be valid but don’t act without facts.
Jumping at partnerships where the economics don’t work
The larger the partner, the sexier the partnership. But I’ve also found that the larger the partner, the more likely the partnership will be economically one-sided to their benefit. Because they can demand it.
There are two ways a partnership can go wrong. The first is in the actual agreement itself, when the deal is drawn up to maximize what the partner gets out of it. The startup is so happy to be attached to the partner’s name that they go along with it anyway.
The harder mistake to avoid is when a more even-handed partnership agreement is signed, but the partner puts little or no effort into their side of the arrangement. As quickly as the partnership is sought-after and championed, it becomes an afterthought when the ink is dry.
Every partnership must include checks and balances on both sides to make sure that each party is putting forth a reasonable amount of effort to follow through on their responsibilities. And I say “reasonable” instead of maximum because when you’re a startup, what you think of as minimum effort will be your partner’s idea of maximum effort.
If they won’t sign a deal that includes some metric on effort, say no.
It’s easy to chase opportunities that look promising, especially the ones that get everyone on your team super excited and especially when everything is moving so fast. The difference between the experienced and inexperienced entrepreneur is patience.
Wait for the right opportunities to come to you. You’ll be better prepared to take advantage of them when you’re not working crazy hard fighting losing battles.