growth

7 reasons to Fail Early & Cheaply

Since everyone knows 19 out of 20 start-ups will fail… why not fail as soon as you can and as cheaply as you can?  In fact, recent evidence suggests that the #1 reason start-ups fail is trying to scale up too quickly/too soon.  Here are 7 reasons to FAIL as quickly as possible, and as cheaply as possible:

  1. Whenever you fail, you almost always learn more than if you succeed… especially if you start out with the goal of learning/deciding if a hypothesis will work.
  2. If you can fail quickly, you will likely have time and energy enough to try again!  (not necessarily a ‘new’ start-up, but instead another “hypothesis”/product variation to test in the current one).
  3. If you fail cheaply, you may have money enough to try again!
  4. If you fail early, you avoid spending too much time on a bad idea.
  5. If you fail cheaply, you haven’t invested too much “sunk costs” into the idea, and can let it die more quickly.
  6. If you can fail quickly, it means you have wisely set criteria for failure (a rare thing indeed!)!
  7. If and when you succeed, you KNOW you have something, because you have defined (wisely) what success is, and your past failures prove that the current situation is “Worth” scaling up!
Final word of warning: Scaling up itself is a difficult challenge, so use the term literally, and slowly increase the rate of growth, rather than step function.

Know how you plan to grow!

Here’s the deal.  If you have a business, and you don’t have a plan for how to grow.. you are already failing.  You need to at least have a hypothesis by which you believe you can achieve SCALE-ABLE GROWTH.  And there is not reason to not grow.. here are the top strategies.. the key is always test (“Is your strategy working?”):

  1. you will grow by viral behaviour.  Once you get a boost of new players, you will auto-grow because your virality is above 1.0.
  2. you will grow by advertising.  You make enough profit $$ per item/customer (after acquisition costs) that it justifies continued ramped up investments in advertising.
  3. you will grow by retention and word-of-mouth.  Similar to virailty, but more personal.  you will retain your customers so well, they keep buying more and more and even bring friends occasionally.
  4. you will grow by ‘free’ marketing.  People are searching for what you got, and your SEO will help them find you in a scalable fashion. (p.s. this is very difficult)
  5. you will grow by hiring a sales-force and hunting out the best customers.
What’s your strategy?
Got any others to add to this list?

Knowing a Small Business Idea from a Big Business Idea


I have many Engineer friends, many of whom have a business or product idea which they come to me for advice on how or even if they should begin. I always counter with this first key question: Is it intended to be a Small Business or a Big Business. The answer is invariable, BIG, and sadly, the idea is usually SMALL. So why the disconnect? The reason is that a business needs to have certain criteria in order for it to ‘grow big’. If it fails one or all of these, your business will either ‘be small, like mom&pop store’ or ‘bust, because its not sustainable’. In fact MANY, MANY Small businesses fail because of competition. This recent article from Bank of America (someone who knows failed businesses), highlights the 7 most overrated businesses http://smallbusinessanswers.yahoo.com/overrated and is a good short read.

My criteria for a big business idea vs. a small one are simple.
1. It must be Scalable – This is the most important! If your business is “regional, only works in Colorado for example”, or requires excessive infrastructure (like a building in every region), or requires an excessive workforce (like door-to-door salesmen, or many thousands of workers per factory), than you have a SCALABILITY problem. This kind of problem CAN be overcome, but very rarely by Entrepreneurs… we get too bored with it! The classic example of “not scalable” is that of the ‘Gaming Cafe’, where people pay by the hour to place games. This is just not a scalable business. You need buildings, infrastructure, people (to manage it), and so on. The only way to make this not a mom&pop is to make it a franchise… [see link above about 7 overrated businesses].

2. It must create Barriers to Entry for Competition – this can be patent protection (not just patents, but ones that protect), a unique advantage (like having done it before), a unique/strong brand, or a significant ‘lead’ or ‘leap’ in technology.

3. It must be more than 1 Product – having only 1 product leads to inefficiencies in marketing, sales, and lots of other funcitons. If you can’t leverage your workforce for multiple products (even in the same family is ok), then you might be stuck with an idle, overpaid workforce.

4. It must not rely on 1 customer or partner – this one is just too risky. A business CAN be big with this but at great risk. And if a big business relies too heavily on 1 customer or partner, the risk will prevent growth.

I’m sure that there are other criteria, and I didn’t really define a Big Business Idea is… but that is intentional. I never judge folks who ask me for this advice. Most “Small Business Ideas” can turn big with enough effort and thought. Lets face it, usually it comes down to raising money! Either from investors or bankers, having the right business idea/business plan is key to getting that first dollar.

One final comment: some people SHOULD consider the Small Business route. Mom & pop style shops and the lifestyle that they can bring can be very rewarding! There is nothing wrong at all with that, its just a problem when people expect ‘big business’ and are faced with small.