startupmistakes.html
The 18 Mistakes That Kill Startups



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




October 2006In 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 FounderHave 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 LocationStartups 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 NicheMost 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 IdeaMany 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 <NAME> wanted a computer,
Google because Larry and Sergey couldn't find stuff online, Hotmail
because <NAME> and <NAME> 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. ObstinacyIn 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 ProgrammersI 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.But when I think about what killed most of the startups in the
e-commerce business back in the 90s, it was bad programmers.  A lot
of those companies were started by business guys who thought the
way startups worked was that you had some clever idea and then hired
programmers to implement it.  That's actually much harder than it
sounds — almost impossibly hard in fact — because business guys
can't tell which are the good programmers.  They don't even get a
shot at the best ones, because no one really good wants a job
implementing the vision of a business guy.In practice what happens is that the business guys choose people
they think are good programmers (it says here on his resume that
he's a Microsoft Certified Developer) but who aren't.  Then they're
mystified to find that their startup lumbers along like a World War
II bomber while their competitors scream past like jet fighters.
This kind of startup is in the same position as a big company,
but without the advantages.So how do you pick good programmers if you're not a programmer?  I
don't think there's an answer.  I was about to say you'd have to
find a good programmer to help you hire people.  But if you can't
recognize good programmers, how would you even do that?7. Choosing the Wrong PlatformA related problem (since it tends to be done by bad programmers)
is choosing the wrong platform.  For example, I think a lot of
startups during the Bubble killed themselves by deciding to build
server-based applications on Windows.  Hotmail was still running
on FreeBSD for years after Microsoft bought it, presumably because
Windows couldn't handle the load.  If Hotmail's founders
had chosen to use Windows, they would have been swamped.PayPal only just dodged this bullet.  After they merged with X.com,
the new CEO wanted to switch to Windows — even after PayPal cofounder
<NAME> showed that their software scaled only 1% as well on
Windows as Unix.  Fortunately for PayPal they switched CEOs instead.Platform is a vague word.  It could mean an operating system, or a
programming language, or a "framework" built on top of a programming
language.  It implies something that both supports and limits, like
the foundation of a house.The scary thing about platforms is that there are always some that
seem to outsiders to be fine, responsible choices and yet, like
Windows in the 90s, will destroy you if you choose them.  Java
applets were probably the most spectacular example.  This was
supposed to be the new way of delivering applications.  Presumably
it killed just about 100% of the startups who believed that.How do you pick the right platforms?  The usual way is to hire good
programmers and let them choose.  But there is a trick you could
use if you're not a programmer: visit a top computer science
department and see what they use in research projects.8. Slowness in LaunchingCompanies of all sizes have a hard time getting software done.  It's
intrinsic to the medium; software is always 85% done.  It takes an
effort of will to push through this and get something released to
users.
[3]Startups make all kinds of excuses for delaying their launch.  Most
are equivalent to the ones people use for procrastinating in everyday
life.  There's something that needs to happen first.  Maybe.  But
if the software were 100% finished and ready to launch at the push
of a button, would they still be waiting?One reason to launch quickly is that it forces you to actually
finish some quantum of work.  Nothing is truly finished till it's
released; you can see that from the rush of work that's always
involved in releasing anything, no matter how finished you thought
it was.  The other reason you need to launch is that it's only by
bouncing your idea off users that you fully understand it.Several distinct problems manifest themselves as delays in launching:
working too slowly; not truly understanding the problem; fear of
having to deal with users; fear of being judged; working on too
many different things; excessive perfectionism.  Fortunately you
can combat all of them by the simple expedient of forcing yourself
to launch something fairly quickly.9. Launching Too EarlyLaunching too slowly has probably killed a hundred times more
startups than launching too fast, but it is possible to launch too
fast.  The danger here is that you ruin your reputation.  You launch
something, the early adopters try it out, and if it's no good they
may never come back.So what's the minimum you need to launch?  We suggest startups think
about what they plan to do, identify a core that's both (a) useful
on its own and (b) something that can be incrementally expanded
into the whole project, and then get that done as soon as possible.This is the same approach I (and many other programmers) use for
writing software.  Think about the overall goal, then start by
writing the smallest subset of it that does anything useful.  If
it's a subset, you'll have to write it anyway, so in the worst case
you won't be wasting your time.  But more likely you'll find that
implementing a working subset is both good for morale and helps you
see more clearly what the rest should do.The early adopters you need to impress are fairly tolerant.  They
don't expect a newly launched product to do everything; it just has
to do something.10. Having No Specific User in MindYou can't build things users like without understanding them.  I
mentioned earlier that the most successful startups seem to have
begun by trying to solve a problem their founders had.  Perhaps
there's a rule here: perhaps you create wealth in proportion to how
well you understand the problem you're solving, and the problems
you understand best are your own. 
[4]That's just a theory.  What's not a theory is the converse: if
you're trying to solve problems you don't understand, you're hosed.And yet a surprising number of founders seem willing to
assume that someone, they're not sure exactly who, will want what
they're building.  Do the founders want it?  No, they're not the
target market.  Who is?  Teenagers.  People interested in local
events (that one is a perennial tarpit).  Or "business" users.  What
business users?  Gas stations?  Movie studios?  Defense contractors?You can of course build something for users other than yourself.
We did.  But you should realize you're stepping into dangerous
territory.  You're flying on instruments, in effect, so you should
(a) consciously shift gears, instead of assuming you can rely on
your intuitions as you ordinarily would, and (b) look at the
instruments.In this case the instruments are the users.  When designing for
other people you have to be empirical.  You can no longer guess
what will work; you have to find users and measure their responses.
So if you're going to make something for teenagers or "business"
users or some other group that doesn't include you, you have to be
able to talk some specific ones into using what you're making.  If
you can't, you're on the wrong track.11. Raising Too Little MoneyMost successful startups take funding at some point.  Like having
more than one founder, it seems a good bet statistically.  How much
should you take, though?Startup funding is measured in time.  Every startup that isn't
profitable (meaning nearly all of them, initially) has a certain
amount of time left before the money runs out and they have to stop.
This is sometimes referred to as runway, as in "How much runway do
you have left?"  It's a good metaphor because it reminds you that
when the money runs out you're going to be airborne or dead.Too little money means not enough to get airborne.  What airborne
means depends on the situation.  Usually you have to advance to a
visibly higher level: if all you have is an idea, a working prototype;
if you have a prototype, launching; if you're launched, significant
growth.  It depends on investors, because until you're profitable
that's who you have to convince.So if you take money from investors, you have to take enough to get
to the next step, whatever that is.
[5]
Fortunately you have some
control over both how much you spend and what the next step is.  We
advise startups to set both low, initially: spend practically
nothing, and make your initial goal simply to build a solid prototype.
This gives you maximum flexibility.12. Spending Too MuchIt's hard to distinguish spending too much from raising too little.
If you run out of money, you could say either was the cause.  The
only way to decide which to call it is by comparison with other
startups.  If you raised five million and ran out of money, you
probably spent too much.Burning through too much money is not as common as it used to be.
Founders seem to have learned that lesson.  Plus it keeps getting
cheaper to start a startup.  So as of this writing few startups
spend too much.  None of the ones we've funded have.  (And not just
because we make small investments; many have gone on to raise further
rounds.)The classic way to burn through cash is by hiring a lot of people.
This bites you twice: in addition to increasing your costs, it slows
you down—so money that's getting consumed faster has to last
longer.  Most hackers understand why that happens; <NAME>
explained it in The Mythical Man-Month.We have three general suggestions about hiring: (a) don't do it if
you can avoid it, (b) pay people with equity rather than salary,
not just to save money, but because you want the kind of people who
are committed enough to prefer that, and (c) only hire people who
are either going to write code or go out and get users, because
those are the only things you need at first.13. Raising Too Much MoneyIt's obvious how too little money could kill you, but is there such
a thing as having too much?Yes and no.  The problem is not so much the money itself as what
comes with it.  As one VC who spoke at Y Combinator said, "Once you
take several million dollars of my money, the clock is ticking."
If VCs fund you, they're not going to let you just put the money
in the bank and keep operating as two guys living on ramen.  They
want that money to go to work. 
[6]
At the very least you'll move
into proper office space and hire more people.  That will change
the atmosphere, and not entirely for the better.  Now most of your
people will be employees rather than founders. They won't be as
committed; they'll need to be told what to do; they'll start to
engage in office politics.When you raise a lot of money, your company moves to the suburbs
and has kids.Perhaps more dangerously, once you take a lot of money it gets
harder to change direction.  Suppose your initial plan was to sell
something to companies.  After taking VC money you hire a sales
force to do that. What happens now if you realize you should be
making this for consumers instead of businesses?  That's a completely
different kind of selling.  What happens, in practice, is that you
don't realize that.  The more people you have, the more you stay
pointed in the same direction.Another drawback of large investments is the time they take.  The
time required to raise money grows with the amount.
[7]
When the
amount rises into the millions, investors get very cautious.  VCs
never quite say yes or no; they just engage you in an apparently
endless conversation.  Raising VC scale investments is thus a huge
time sink — more work, probably, than the startup itself.   And you
don't want to be spending all your time talking to investors while
your competitors are spending theirs building things.We advise founders who go on to seek VC money to take the first
reasonable deal they get.  If you get an offer from a reputable
firm at a reasonable valuation with no unusually onerous terms,
just take it and get on with building the company.
[8]
Who cares
if you could get a 30% better deal elsewhere?  Economically, startups
are an all-or-nothing game.  Bargain-hunting among investors is a
waste of time.14. Poor Investor ManagementAs a founder, you have to manage your investors.  You shouldn't
ignore them, because they may have useful insights.  But neither
should you let them run the company.  That's supposed to be your
job.  If investors had sufficient vision to run the companies
they fund, why didn't they start them?Pissing off investors by ignoring them is probably less dangerous
than caving in to them.  In our startup, we erred on the ignoring
side.  A lot of our energy got drained
away in disputes with investors instead of going into the product.
But this was less costly than giving in, which would probably have
destroyed the company.  If the founders know what they're doing,
it's better to have half their attention focused on the product
than the full attention of investors who don't.How hard you have to work on managing investors usually depends on
how much money you've taken.  When you raise VC-scale money, the
investors get a great deal of control.  If they have a board majority,
they're literally your bosses.  In the more common case, where
founders and investors are equally represented and the deciding
vote is cast by neutral outside directors, all the investors have
to do is convince the outside directors and they control the company.If things go well, this shouldn't matter.  So long as you seem to
be advancing rapidly, most investors will leave you alone.  But
things don't always go smoothly in startups.  Investors have made
trouble even for the most successful companies.  One of the most
famous examples is Apple, whose board made a nearly fatal blunder
in firing <NAME>.  Apparently even Google got a lot of grief
from their investors early on.15. Sacrificing Users to (Supposed) ProfitWhen I said at the beginning that if you make something users want,
you'll be fine, you may have noticed I didn't mention anything about
having the right business model.  That's not because making money
is unimportant.  I'm not suggesting that founders start companies
with no chance of making money in the hope of unloading them before
they tank.  The reason we tell founders not to worry about the
business model initially is that making something people want is
so much harder.I don't know why it's so hard to make something people want.  It
seems like it should be straightforward.  But you can tell it must
be hard by how few startups do it.Because making something people want is so much harder than making
money from it, you should leave business models for later, just as
you'd leave some trivial but messy feature for version 2.  In version
1, solve the core problem.  And the core problem in a startup is
how to create wealth 
(= how much people want something x the number
who want it), not how to convert that wealth into money.The companies that win are the ones that put users first.  Google,
for example.  They made search work, then worried about how to make
money from it.  And yet some startup founders still think it's
irresponsible not to focus on the business model from the beginning.
They're often encouraged in this by investors whose experience comes
from less malleable industries.It is irresponsible not to think about business models.  It's
just ten times more irresponsible not to think about the product.16. Not Wanting to Get Your Hands DirtyNearly all programmers would rather spend their time writing code
and have someone else handle the messy business of extracting money
from it.  And not just the lazy ones.  <NAME> Sergey apparently
felt this way too at first.  After developing their new search
algorithm, the first thing they tried was to get some other company
to buy it.Start a company?  Yech.  Most hackers would rather just have ideas.
But as Larry and Sergey found, there's not much of a market for
ideas.  No one trusts an idea till you embody it in a product and
use that to grow a user base.  Then they'll pay big time.Maybe this will change, but I doubt it will change much.  There's
nothing like users for convincing acquirers.  It's not just that
the risk is decreased.  The acquirers are human, and they have a
hard time paying a bunch of young guys millions of dollars just for
being clever.  When the idea is embodied in a company with a lot
of users, they can tell themselves they're buying the users rather
than the cleverness, and this is easier for them to swallow.
[9]If you're going to attract users, you'll probably have to get up
from your computer and go find some.  It's unpleasant work, but if
you can make yourself do it you have a much greater chance of
succeeding.  In the first batch of startups we funded, in the summer
of 2005, most of the founders spent all their time building their
applications.  But there was one who was away half the time talking
to executives at cell phone companies, trying to arrange deals.
Can you imagine anything more painful for a hacker?
[10]
But it
paid off, because this startup seems the most successful of that
group by an order of magnitude.If you want to start a startup, you have to face the fact that you
can't just hack.  At least one hacker will have to spend some of
the time doing business stuff.17. Fights Between FoundersFights between founders are surprisingly common.  About 20% of the
startups we've funded have had a founder leave.  It happens so often
that we've reversed our attitude to vesting.  We still don't require
it, but now we advise founders to vest so there will be an orderly
way for people to quit.A founder leaving doesn't necessarily kill a startup, though.  Plenty
of successful startups have had that happen. 
[11]
Fortunately it's
usually the least committed founder who leaves.  If there are three
founders and one who was lukewarm leaves, big deal.  If you have
two and one leaves, or a guy with critical technical skills leaves,
that's more of a problem.  But even that is survivable.  Blogger
got down to one person, and they bounced back.Most of the disputes I've seen between founders could have been
avoided if they'd been more careful about who they started a company
with.  Most disputes are not due to the situation but the people.
Which means they're inevitable.  And most founders who've been
burned by such disputes probably had misgivings, which they suppressed,
when they started the company.  Don't suppress misgivings.  It's
much easier to fix problems before the company is started than
after.  So don't include your housemate in your startup because
he'd feel left out otherwise.  Don't start a company with someone
you dislike because they have some skill you need and you worry you
won't find anyone else.  The people are the most important ingredient
in a startup, so don't compromise there.18. A Half-Hearted EffortThe failed startups you hear most about are the spectacular
flameouts.  Those are actually the elite of failures.  The most
common type is not the one that makes spectacular mistakes, but the
one that doesn't do much of anything — the one we never even hear
about, because it was some project a couple guys started on the
side while working on their day jobs, but which never got anywhere
and was gradually abandoned.Statistically, if you want to avoid failure, it would seem like the
most important thing is to quit your day job.  Most founders of
failed startups don't quit their day jobs, and most founders of
successful ones do.  If startup failure were a disease, the CDC
would be issuing bulletins warning people to avoid day jobs.Does that mean you should quit your day job?  Not necessarily.  I'm
guessing here, but I'd guess that many of these would-be founders
may not have the kind of determination it takes to start a company,
and that in the back of their minds, they know it.  The reason they
don't invest more time in their startup is that they know it's a
bad investment.
[12]I'd also guess there's some band of people who could have succeeded
if they'd taken the leap and done it full-time, but didn't. I have
no idea how wide this band is, but if the winner/borderline/hopeless
progression has the sort of distribution you'd expect, the number
of people who could have made it, if they'd quit their day job, is
probably an order of magnitude larger than the number who do make
it.
[13]If that's true, most startups that could succeed fail because the
founders don't devote their whole efforts to them.  That certainly
accords with what I see out in the world.  Most startups fail because
they don't make something people want, and the reason most don't
is that they don't try hard enough.In other words, starting startups is just like everything else.
The biggest mistake you can make is not to try hard enough.  To the
extent there's a secret to success, it's not to be in denial about
that.
Notes[1]
This is not a complete list of the causes of failure,
just those you can control.  There are also several you can't,
notably ineptitude and bad luck.[2]
Ironically, one variant of the Facebook that might work is a
facebook exclusively for college students.[3]
<NAME> tried to motivate people by saying "Real artists
ship."  This is a fine sentence, but unfortunately not true.  Many
famous works of art are unfinished.  It's true in fields that have
hard deadlines, like architecture and filmmaking, but even there
people tend to be tweaking stuff till it's yanked out of their
hands.[4]
There's probably also a second factor: startup founders tend
to be at the leading edge of technology, so problems they face are
probably especially valuable.[5]
You should take more than you think you'll need, maybe 50% to
100% more, because software takes longer to write and deals longer
to close than you expect.[6]
Since people sometimes call us VCs, I should add that we're
not.  VCs invest large amounts of other people's money.  We invest
small amounts of our own, like angel investors.[7]
Not linearly of course, or it would take forever to raise five
million dollars.  In practice it just feels like it takes forever.Though if you include the cases where VCs don't invest, it would
literally take forever in the median case.  And maybe we should,
because the danger of chasing large investments is not just that
they take a long time.  That's the best case.  The real danger
is that you'll expend a lot of time and get nothing.[8]
Some VCs will offer you an artificially low valuation to see
if you have the balls to ask for more.  It's lame that VCs play
such games, but some do.  If you're dealing with one of those you
should push back on the valuation a bit.[9]
Suppose YouTube's founders had gone to Google in 2005 and told
them "Google Video is badly designed.  Give us $10 million and we'll
tell you all the mistakes you made."  They would have gotten
the royal raspberry.  Eighteen months later Google paid $1.6 billion
for the same lesson, partly because they could then tell themselves
that they were buying a phenomenon, or a community, or some vague
thing like that.I don't mean to be hard on Google.  They did better than their
competitors, who may have now missed the video boat entirely.[10]
Yes, actually: dealing with the government.  But phone companies
are up there.[11]
Many more than most people realize, because companies don't advertise
this.  Did you know Apple originally had three founders?[12]
I'm not dissing these people.  I don't have the determination
myself.  I've twice come close to starting startups since Viaweb,
and both times I bailed because I realized that without the spur
of poverty I just wasn't willing to endure the stress of a startup.[13]
So how do you know whether you're in the category of people
who should quit their day job, or the presumably larger one who
shouldn't?  I got to the point of saying that this was hard to judge
for yourself and that you should seek outside advice, before realizing
that that's what we do.  We think of ourselves as investors, but
viewed from the other direction Y Combinator is a service for
advising people whether or not to quit their day job.  We could be
mistaken, and no doubt often are, but we do at least bet money on
our conclusions.Thanks to <NAME>, <NAME>, <NAME>, and <NAME> 
for reading drafts of this.
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