The 18 Mistakes That Kill Startups

[The 18 Mistakes That Kill Startups]

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| Want to start a startup? Get funded by
Y Combinator. |

October 2006

In the Q & A period after a recent talk, someone asked what made
startups fail. After standing there gaping for a few seconds I
realized this was kind of a trick question. It's equivalent to
asking how to make a startup succeed — if you avoid every cause of
failure, you succeed — and that's too big a question to answer on
the fly.

Afterwards I realized it could be helpful to look at the problem
from this direction. If you have a list of all the things you
shouldn't do, you can turn that into a recipe for succeeding just
by negating. And this form of list may be more useful in practice.
It's easier to catch yourself doing something you shouldn't than
always to remember to do something you should.
[1]

In a sense there's just one mistake that kills startups: not making
something users want. If you make something users want, you'll
probably be fine, whatever else you do or don't do. And if you
don't make something users want, then you're dead, whatever else
you do or don't do. So really this is a list of 18 things that
cause startups not to make something users want. Nearly all failure
funnels through that.

1. Single Founder

Have you ever noticed how few successful startups were founded by
just one person? Even companies you think of as having one founder,
like Oracle, usually turn out to have more. It seems unlikely this
is a coincidence.

What's wrong with having one founder? To start with, it's a vote
of no confidence. It probably means the founder couldn't talk any
of his friends into starting the company with him. That's pretty
alarming, because his friends are the ones who know him best.

But even if the founder's friends were all wrong and the company
is a good bet, he's still at a disadvantage. Starting a startup
is too hard for one person. Even if you could do all the work
yourself, you need colleagues to brainstorm with, to talk you out
of stupid decisions, and to cheer you up when things go wrong.

The last one might be the most important. The low points in a
startup are so low that few could bear them alone. When you have
multiple founders, esprit de corps binds them together in a way
that seems to violate conservation laws. Each thinks "I can't let
my friends down." This is one of the most powerful forces in human
nature, and it's missing when there's just one founder.

2. Bad Location

Startups prosper in some places and not others. Silicon Valley
dominates, then Boston, then Seattle, Austin, Denver, and New York. After
that there's not much. Even in New York the number of startups per
capita is probably a 20th of what it is in Silicon Valley. In towns
like Houston and Chicago and Detroit it's too small to measure.

Why is the falloff so sharp? Probably for the same reason it is
in other industries. What's the sixth largest fashion center in
the US? The sixth largest center for oil, or finance, or publishing?
Whatever they are they're probably so far from the top that it would
be misleading even to call them centers.

It's an interesting question why cities
become startup hubs, but
the reason startups prosper in them is probably the same as it is
for any industry: that's where the experts are. Standards are
higher; people are more sympathetic to what you're doing; the kind
of people you want to hire want to live there; supporting industries
are there; the people you run into in chance meetings are in the
same business. Who knows exactly how these factors combine to boost
startups in Silicon Valley and squish them in Detroit, but it's
clear they do from the number of startups per capita in each.

3. Marginal Niche

Most of the groups that apply to Y Combinator suffer from a common
problem: choosing a small, obscure niche in the hope of avoiding
competition.

If you watch little kids playing sports, you notice that below a
certain age they're afraid of the ball. When the ball comes near
them their instinct is to avoid it. I didn't make a lot of catches
as an eight year old outfielder, because whenever a fly ball came
my way, I used to close my eyes and hold my glove up more for
protection than in the hope of catching it.

Choosing a marginal project is the startup equivalent of my eight
year old strategy for dealing with fly balls. If you make anything
good, you're going to have competitors, so you may as well face
that. You can only avoid competition by avoiding good ideas.

I think this shrinking from big problems is mostly unconscious.
It's not that people think of grand ideas but decide to pursue
smaller ones because they seem safer. Your unconscious won't even
let you think of grand ideas. So the solution may be to think about
ideas without involving yourself. What would be a great idea for
someone else to do as a startup?

4. Derivative Idea

Many of the applications we get are imitations of some existing
company. That's one source of ideas, but not the best. If you
look at the origins of successful startups, few were started in
imitation of some other startup. Where did they get their ideas?
Usually from some specific, unsolved problem the founders identified.

Our startup made software for making online stores. When we started
it, there wasn't any; the few sites you could order from were
hand-made at great expense by web consultants. We knew that if
online shopping ever took off, these sites would have to be generated
by software, so we wrote some. Pretty straightforward.

It seems like the best problems to solve are ones that affect you
personally. Apple happened because Steve Wozniak wanted a computer,
Google because Larry and Sergey couldn't find stuff online, Hotmail
because Sabeer Bhatia and Jack Smith couldn't exchange email at
work.

So instead of copying the Facebook, with some variation that the
Facebook rightly ignored, look for ideas from the other direction.
Instead of starting from companies and working back to the problems
they solved, look for problems and imagine the company that might
solve them.
[2]
What do people complain about? What do you wish there was?

5. Obstinacy

In some fields the way to succeed is to have a vision of what you
want to achieve, and to hold true to it no matter what setbacks you
encounter. Starting startups is not one of them. The stick-to-your-vision
approach works for something like winning an Olympic gold medal,
where the problem is well-defined. Startups are more like science,
where you need to follow the trail wherever it leads.

So don't get too attached to your original plan, because it's
probably wrong. Most successful startups end up doing something
different than they originally intended — often so different that
it doesn't even seem like the same company. You have to be prepared
to see the better idea when it arrives. And the hardest part of
that is often discarding your old idea.

But openness to new ideas has to be tuned just right. Switching
to a new idea every week will be equally fatal. Is there some kind
of external test you can use? One is to ask whether the ideas
represent some kind of progression. If in each new idea you're
able to re-use most of what you built for the previous ones, then
you're probably in a process that converges. Whereas if you keep
restarting from scratch, that's a bad sign.

Fortunately there's someone you can ask for advice: your users. If
you're thinking about turning in some new direction and your users
seem excited about it, it's probably a good bet.

6. Hiring Bad Programmers

I forgot to include this in the early versions of the list,
because nearly all the founders I know are programmers. This is
not a serious problem for them. They might accidentally hire someone
bad, but it's not going to kill the company. In a pinch they can
do whatever's required themselves.

[...]

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