The last year has been frenetic and we will continue to see long-tail effects from recent events for some time. However, no matter the economic climate, most startups fail. For those that make it: What do they have in common, and how can first-time founders set themselves up for success now?
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According to Wilbur Labs’ founder survey, which we conducted in December 2020, startups fail due to a lack of resources, inadequate planning and loss of focus. While the current environment may feel demotivating, the good news is that even though market conditions change, what makes for a successful startup does not. Here’s how to beat the odds.
Identify a real problem to solve
This is always the first step to building a great company. In a zero-interest rate world, money was cheap and some founders got away from solving real problems. The Wall Street Journal declared the “nice-to-have” economy is in decline as pandemic-level spending retreats. Solving real problems that customers will actually spend money on is critical.
At Wilbur Labs, we won’t start a company unless there is a clear road to customers voting for the product with their wallet or their time.
Don’t underestimate the power of planning
Continued volatility makes it hard to forecast what’s ahead. In our survey, 30% urged peers to do more research before launch. You have no control over the current environment, but you have full control over your ability to plan how you’ll reach product-market fit. Effectively front-loading planning requires talking to customers and experts, and painting a clear picture of all the workstreams needed to reach product-market fit. Then, working backward, outlining all the steps needed to get there.
Product-market fit varies by company but should always translate to acquiring revenue at healthy unit economics. Winning founders obsessively focus on reaching that milestone and say no to anything that distracts from that goal.
Bottom line over top line
Conditions over the past few years enabled companies to aim for growth at all costs. Over the long term, companies that survive are those that balance growth and profitability. Top-line results are great, but cash flow rules. Founders — especially in 2023 — should be building and compounding the bottom line.
Do this by first prioritizing for impact and not singularly optimizing for top-line metrics. Gross sales growth may help you achieve your goals, but is not the end goal. Second, don’t wait for a downturn to scrutinize expenses. Monthly reviews and bottoms-up budgeting will optimize results.
Fundraising is a means, not an end
Before thinking about funding, focus on building a financial model that maps to your plan for reaching product-market fit. While no forecast will be perfect, this exercise forces you to think through all the costs and revenue of the business in a constructive way. How can you know your best path forward, and what kind of funding is optimal for your company without that? Avoid the trap of over-dilution and letting fundraising be the end goal. Instead, focus on real business milestones and driving cash flow over time.
Evolving consumer demands and technologies are ushering in a new era of business dynamism — opening doors for startups that can outmaneuver incumbents. No matter the environment, there will always be space for innovation and for new leaders to emerge. Tune the noise out, build your roadmap, and tack into the headwinds of the unknown. If you do that successfully, you will set yourself up to be among the 10% that make it.
David Kolodny is a co-founder at the startup studio Wilbur Labs. Prior to building Wilbur Labs, he was a product specialist on the customer solutions and innovations team at Google, a team that shapes advertising product roadmaps and designs go-to-market strategy.
Illustration: Dom Guzman
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