Why do startups go bust?

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by Saveliy Lenivin
Oqtacore CEO
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Many founders of promising companies start making mistakes during the development stage that lead to a natural collapse.

To keep your startup from going out of business, you need to have basic information about how a founder should behave. In this article, we will discuss this.

Don’t take your startup too personal

First, it often happens that the founders simply think that everything that happens to their startup is a “failure”. They are emotionally involved in the process, and their vision of the situation is subjective. At this point, he is prone to make mistakes. In fact, outside observers can see that everything is going well.

Naturally, at least at the initial stages of development, decision-making remains with the founder, but it is necessary to listen to the opinion of the outsider.

Let your startup do the first steps without you

Second, many startup founders mistakenly regard their companies as their children. They closely monitor each process, trying to fully control the activities of the company. They are convinced that without their full participation, the company will die immediately, so they make the majority of sales and make all decisions.

This behavior of the founder is undoubtedly effective in the very early stages of the company’s development, but in the future it will not bring anything good.

Let’s get back to the comparison: startup = child. At a certain point in the child’s growing up, you, as a parent, send the child to ride a two-wheeled bicycle without safety wheels.

As a parent, you have two options:

1. Run next to the kid, so that when it starts to collapse, support the steering wheel until the end of the trip.

2. Do not interfere with the ride of the child. Just watch the boom.

In the first case, the child will remain intact, at least during this trip. But he/she will get used to the fact that you are there, and, in the future, each next trip will wait for you to insure him/her.

If you do not interfere in the process in any way, then the child will sooner or later fall. And this fall is very valuable! Mistakes are an essential part of the learning process, nobody can learn upon success. Children that are given chance to fall, take responsibility for themselves much sooner and will be able to control a bicycle (a car, a company, their life) much better.

So it is with the company. You can constantly solve all problems and control the processes yourself. True, in this case, your employees will not learn anything and will always depend on you.

You have to be as good as to know a great employee when they pass by

Let your company make mistakes on its own. This will help employees understand how not to make them in the future. The sooner the company gets its own head, the better. Indeed, with its growth, both financial turnover and the cost of an error will increase.

Consider a situation: your employee is about to conclude a deal with a client, but makes a mistake in financial calculations. This mistake will cost the company money. There are two ways:

1. You can stop the employee and correct the mistake before closing the deal. In the short term, you will do a good job for the company by saving money and not going into a negative. But if you look “long”, your employee will not learn from his mistake, and, most likely, every next time in a similar situation will consult with you.

Such a series of your choices will lead to the fact that everything in the company will depend on you. You = company.

2. You can let him make a mistake even if you notice the mistake. Then he will understand from personal experience how it is not necessary to do in the future and will take responsibility for himself.

Thus, the company will learn to be independent.

Find a successor as soon as possible, but do not compromise

At the stages of starting a startup, you can control everything and manage everything, but when the company starts to grow, you will not be able to do it physically. The company will simply fall apart.

Your main task in the initial stages of launching your startup is to teach your employees to make decisions for you. Explain to them what you want from them. They need to be clear about the goals of the company.

The sooner you do this, the easier it will be for the company at further stages of development.

Thirdly, the company can successfully develop not only thanks to the founder. The more functions startup founders take on, the more harm their behavior will bring to the company in the future. You always need to work out the options in advance:

1. You can start nurturing a successor who shares your beliefs and values.

Sooner or later, your company will have investors, and your level of responsibility will increase significantly. If you, as a founder, start to “neglect” your company, behave inappropriately for the face of the company, or simply cannot cope with your duties, you will be asked to leave the company. Take Harvey Weinstein, who lost his company, even though it was named after him.

Therefore, wise founders, boards of directors, and investors always understand that a company needs a reliable successor. And the sooner you integrate it into the process, the better for the company. Some companies take it easy and train multiple receivers. If one of them does not cope with its tasks, you can always try the second.

2. You can hire a specialist from outside to help you manage your business. Take Tesla, for example. It became super famous and successful (and s3xy) thanks to the person who came to it later – Elon Musk.

Know a real deal from pretender

When we choose a competent manager for a company, we need to remember a number of things:

1. The resume is always lying. It paints a person in the best way because the candidate writes about himself. Apart from the fact that there are a lot of exaggerations in the resume, you will not always be able to verify the reliability of some facts at all.

2. Directly at the interview, the applicant will behave in the best possible way. He will be playing the best version of himself that he is not the rest of the time. In fact, this is a play, and he is an actor in it. A person who has been a very convincing interviewee often turns out to be a weak manager.

3. Personal recommendations are not always verifiable. They can be either contractual, or the opinion of another company about this specialist is extremely subjective.

It would be more correct to take the candidates you like for small management positions and see how they cope with them. Give them a trial period. By gradually expanding their responsibilities, you will clearly see which of them is best suited for the role of CEO.

Fourth, most investors appeal to companies where the founder is at the helm when the startup is ready to expand. The chances that your company will receive funding is much higher when it is you, as the creator, who is trying to take it to the next level.

Conclusion

It turns out that by the time you receive investment, you need to have:

  1. a company where employees make their own decisions and take responsibility for them.
  2. several potential successors who, if something happens, can take the helm of your company;
  3. a good reputation as a decent businessman and person.

The article is based on the book “Don’t f ** k it up” by the Professor Les Trachtman.

 

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