That’s great! Nothing excites us more at Kxter.com than ideas. Every single great company has sprung from an original idea by one person. But do not think for a minute that you are the only one with this idea. The sheer fact that there are seven billion people on this planet means that at any given point in time there will be another one hundred people with the same idea. What sets you apart from the rest is your ability to raise money, to follow through on your idea to make it a reality, and the skills to stand out from the crowd. It boils down to motivation, perseverance, tactics, and a bit of humility every now and then.
There are four reasons why 98 percent of all new businesses fail within the first five years:
1. Your timing is off
2. You are underfinanced
3. You have the wrong team
4. You didn’t do your homework
Fortunately for you, you just clicked on this blog (or perhaps you are reading it on your iPad as an e-book) which is designed to convey not only my words of wisdom, but also provide examples, downloads, and reference material that you can use (free of charge) to get organized, raise money, and get you on your way to success. The goal is that by the time you have finished reading this book you will have some key tools and the knowledge you need to make your mark as an entrepreneur. And hopefully, if applied right, the house advantage might just be in your favour.
Your timing is off
No matter how good your product is, and no matter how much money you raise initially, if your timing is off, you will fail. If there’s one thing you should have gleaned from the introduction of this book, it is that every time I started something new, it was in response to some market disruption event — the rise of mp3s and digital TV, and a power blackout. A good example of this is PayPal. You see, PayPal didn’t start out as the world’s leading online payment system. In fact, the company floundered at first as a device-to-device payment system for Palm Pilots. At that time, the concept of a smartphone, iPhone, iPad and a mobile payment solution for all of these was foreign to consumers. They didn’t even have debit card payments in those days. Almost bankrupt and out of money, PayPal, with the invention of the web browser, finally realized the potential of online payment systems for websites. This market shift allowed PayPal to become the success it is today. And it is only now, almost ten years later, that device payment solutions are realistic because the market and consumer mindset have both caught up to the technology. I’m sure by this point someone has dusted off that old business plan from the 1990s.
You are underfinanced
When you start a new business, you will never be an expert until you have paid your dues and spent a couple of years running a company. So it is nearly impossible for an entrepreneur to know exactly how much money he or she will need to stage and launch a business. You can make an educated guess. But ask any successful entrepreneur, and he will tell you that whatever number you come up with, triple it. So if your budget is $50,000, you will most likely need $150,000. If you think you need $10 million, you probably need $30 million. It’s that simple. Now you can probably see why, even if you have $50,000 to start your business, you could run into trouble very fast — because you have no cushion to weather unexpected events. In later chapters, we will determine exactly how and what you need, and for which things you should use personal funds versus investor funds. I will also introduce you to what I call the 10 million dollar formula.
You have the wrong team
The interplay of you and the people who work with you can either make or break your business. I am not just talking about employees, but professionals, lawyers, and advisors. Companies have risen and fallen depending on who the founders have surrounded themselves with. There are a lot of terrible preconceived notions in venture capital circles. Not many people talk about it, but the bias is out there. Legendary investor John Doerr made a telling, offhand remark a few years ago at a venture capital conference. He observed that the “world’s greatest entrepreneurs” are almost all “white male nerds who’ve dropped out of Harvard or Stanford.” That really rubs me the wrong way, because my experience tells me that anyone, no matter what his or her background, race, religion, sexual orientation or even education can have a successful business. You just need to know your personal shortcomings and augment them with a great team. With the right combination, you will not only shine in the eyes of the market, but you will reduce your business risk by ensuring a higher chance of success. We are going to spend a considerable amount of time on this subject later in the book, because it is vital to understand who fits with you and your personality. What you need is your Dream Team.
You didn’t do your homework
This is one area where some of the biggest mistakes happen. Many founders jump at the chance of opening a new business, spending lavish amounts on new office space, retail decorations, signs, branding, and business cards — but not a single penny (or time) is spent on research. People are willing to believe their own convictions without actually considering the market forces at play, the real profit margins, the barriers to entry, and worst of all, they underestimate their competitors. This is probably one of the fastest ways to go bankrupt. I have spent hundreds of thousands of dollars on businesses that I have walked away from because I found a fatal flaw in the business model.
In my next article we will delve into the details of what I do to identify these issues before you ever spend a single dollar on the business.
written by Thomas Schneider, Managing Partner, Kxter.com