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TOP 10 start up killers

Filed in archive Entrepreneurship by tj on July 30, 2008

Judging from what I can hear it's crunch time for start ups out there. VCs raise less money so in turn they are more cautious with fundings. Many companies that raised a first round are now in the process to decide if they should reduce costs and turn profitable very soon or look for other opportunities.

This inspired me to review my TOP 10 list on start up killers. And here we go:

10) No business model - Big issue back in 2000 as it was good enough to have a catchy website. It was less of an issue in 2007 bubblet as advertising was stronger and using Google Adsense is always a viable 'default' business model.

9) Competition - Too much competition can erode margins and confuses potential clients. It's especially hard if you ,say , raise 2 million and build your business only to see the next range of competitors raise 20 million 12 month later targeting the same customers.

8) Bad execution - Can be an issue with first time entrepreneurs or badly motivated or plain lazy folks. However it's rare to find plus even harder to see as an investor as its very hard to judge how a different person would have judged in the same situations.

7) Too much cash - Again big issue in 2000 - start up companies spent like crazy - more consultants hired there than at Fortune 500's. Such a cost structure must be met with extraordinary success in order to succeed. Mostly it does not however.

6) Too little cash, no funding - can become an issue as valuations and risk profile has changed again with most investors in 2008. Sometimes there is simply no way to raise good money for a good idea.

5) Timing Contrary to popular belief - most startups are too early and rarely too late. Getting the timing right is about good gut feeling, superior market knowledge and mostly pure luck.

4) Too high ambitions/ no focus - usually some years into a boom market for start ups - mega start ups are launched that aim to revolutionize a whole industry (remember Healtheon!). These things can be deadly as employees are often seriously overstretched and cash is pouring out like water into an ocean.

3) Broken team - many industry people say startup partners should consider each other spouses for a 3 year time frame (or longer) as they will spend most time together and see intense pressure in their line of work. But once a team is broken and employees polarized it's hard even for strong types to turn around a business.

2) Too little scalability Most startups ramp up costs and revenues. but usually costs are higher than planned and revenues slower as planned. They move and flicker but the company has a hard time really multiplying sales and reaching long-term profitability. Plainly most VC backed companies fall in such a category. It's a slow 'killer'.

1) No demand - For me the biggest killer of all. Most start ups are founded on the idea of a huge demand coming soon. After all you have to be where the puck will be, not where the puck is. Unfortunately in hockey as well as in real life it's extremely difficult to predict where the puck will go. Often start ups do everything well but the market volume everybody is hoping for never materializes.

Which start up killers did I miss?






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Tags: startup  start  up  killers    2007  start+killers  sponsored+post 

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