Why do startup CEOs fail? V3

Why do startup CEOs fail? (V3)

The following is focused on software and high-tech startups.  Many of the concepts apply to other situations.  Failure results from an inter-related set of experience, skills, character, personality, values, morals, ethics, and luck.

The first point-of-failure is when the CEO is thinking of founding a company and becoming CEO.  Examine yourself.  Do you already have the characteristics of someone who is likely to fail?

  • Not able to clearly communicate on why starting the company and what the idea is.
  • Not having a very broad set of knowledge or being able to quickly learn a broad set. A startup CEO does it all without the infrastructure of a large company to support her.
  • Not relentless and able to overcome all obstacles.
  • Not able to do things quickly.
  • Not able to quickly learn from mistakes.
  • Not able to work long hours for many years. The average time for a SaaS startup to exit or IPO is 9 years.  But the vast majority fail.
  • Not willing to take risks. The majority of startup CEOs are forced to leave the company at some stage of funding.
  • Not able to minimize cash spending.
  • Not having the funds (personal savings, family, and friends) to live for a significant period of time without income from your company.
  • Not able to ruthlessly prioritize time e.g. who to meet vs who not to meet; problems which must be solved vs can be ignored.
  • Not having the personality and skills to build a broad set of trusted relationships with potential customers, suppliers, employees, advisors, investors, etc.
  • Not able to attract appropriate coaches, mentors and advisors. There are major differences between star athletes and star coaches.  The same person is rarely a star in both fields.
  • Not able to listen, and clearly understand what the other person intends to communicate.
  • Not willing to go all-in
  • Not extremely intelligent.

The second-point-of failure is when the CEO makes a poor selection of co-founder(s) and is not able to manage co-founder(s).

  • Not able to select co-founders with the range of experience and skills necessary for short-term team success. Co-founders should bring diverse experience and skills, resulting in the pool of capabilities necessary to create and launch the company.
  • Not selecting co-founders with similar objectives, character, values, morals, ethics, and time lines.
  • Not picking founders who have the personal financial resources to live until the company can afford to pay them or third-party investors can provide financial support.
  • Not having a common understanding of what each co-founder will contribute e.g. # of hours, capital, finding capital, creating the product or service.
  • Doesn’t have the skills to make the founders work well together.
  • Not being clear on how decisions are made, and who makes them.
  • Doesn’t ensure that the founders are physically located together and working together.
  • Unable to articulate and help the all the co-founders understand and support the higher purpose of the company. If the only purpose is to make money, the chances of long-term success are low.
  • Not having a common understanding of how much of the company the founders are willing to give up in return for capital.
  • Not documenting expectations and assumptions. This leads to future confusion and disagreements. “People forget 40%-80% of what they hear immediately.   Half the information people do recall, is recalled incorrectly”[1]

[1] Lindsay Wizowski, Theresa Harper, and Tracy Hutchings, Writing Health Information for Patients and Families 4th Edition (Hamilton Health Sciences, 2014), Page 5