Survival of the Fittest: Why Most Startups Fail

Entrepreneurs tend to be people who can be characterized as being rather enthusiastic. They also tend to be people who come up with creative ideas. Put those two together and you will find that entrepreneurs can get very excited about their next, life-changing idea. The startup is born, the promised land awaits. 

The harsh truth, however, reveals that roughly 90% of startups fail. The only life the startup often ends up changing, is the founder’s life who has to watch his baby die. Entrepreneurs are people too, so yes, that hurts. The struggle is real.

Time to reassess why failure rates are so shockingly high. First, let us see where things go wrong. Then, we can examine why they go wrong. 

Where Things Go Wrong: The Startup Lifecycle
The internet seems to have mixed ideas about what today’s startup lifecycle looks like. Perhaps it can be summed up best according to Ganesaraman Kalyanasundaram’s model (and you thought you had difficulties explaining your name to strangers on the phone?). Anyhow, the guy believes the startup lifecycle consists of three stages.

Stage One: Emergence
Here the product focus is high as the entrepreneur actually tries to prove that his product makes sense. The market is explored, marketing efforts are made, funding is mostly arranged through the entrepreneur’s own wallet.

Stage Two: Survival & Stability
By now the entrepreneur should understand the fit between his product and the market. This will allow for new market segments to be captured in order to extend the customer base. Naturally, this requires new sources of (external) funding. Yay, money.

Stage Three: Succes & Accelerated Growth
At this stage the product has matured quite a bit. Revenue streams are up and running. When you reach this stage you can consider yourself one of the lucky ones.

The three stages build on one another like a Jenga game. If the Emergence stage is unstable, the next stages will be trickier to establish, increasing your anxiety for the Jenga tower to collapse. So, unsurprisingly, most failures originate in stage 1 (and sometimes 2). 

Why Things Go Wrong: Reasons For Failure
Now that we know where things go wrong, it is time to sort out why things go wrong. There are two common reasons for failure. 

Reason One: Timing Is Everything
According to Bill Gross, there are five factors that influence the startup and its lifecycle. With his company, Gross built over 100 startups so the guy seems to know what he is talking about. He found that timing is the most important factor and accounts for 42% of the difference between success and failure. Think of ride-sharing companies that capitalized on the 2009 recession. For them the timing was right because their model allowed their price-conscious customers to save for a rainy day. However, many entrepreneurs try to solve a problem that they personally encounter without realizing that the market is not looking for the solution at that point in time. So, they did not properly do their market research.

Reason Two: A Lack of Good People
The team has been identified as the second reason why startups have to pull the plug. Probably we have all heard of the golden formula consisting of the hipster, the hacker and the hustler. Practically, this translates into diverse teams. So, depending on the business area, you will need a team consisting of people that are highly skilled in different areas. Teamwork actually makes the dream work. So cheesy, so true. 

The other factors that Gross considered were the business idea, the business model and funding. Although many entrepreneurs believe the idea is key, the idea only turned out to be the third important differentiator between success and failure, followed by the business model and lastly the funding. 

 The two most important factors that distinguish success from failure (timing and people) should be addressed in lifecycle stage one.

So Speaking In Practical Terms, What Does This All  Mean?
When merging Kalyanasundaram’s and Gross’ concepts, we can see something interesting happening. What? Well, the two most important factors that distinguish success from failure (timing and people) should be addressed in lifecycle stage one. The stage where most startups fail, remember? This means that when market research is performed poorly, if the timing is assessed wrongly or if the right people are not on board, the startup is likely to exit the lifecycle. The startup fails, the dream shatters, the baby dies. 

Do you have a great idea and want to belong to the 10% of startups that succeed? We would be happy to help out. 

About Amstel Lab
Amstel Lab partners with start-ups and scale-ups to commercialize your business. On the back of our experience, we have developed the unique Amstel Lab method: a tailor-made approach to maximize success. We test your markets, refine your product, innovate your commercial approach and execute your strategies. Any good idea is worth seeing through.

Want to learn more? Contact us through [email protected]

Disruptive Innovation: The Practical Benefits Behind the Science

Today’s business vocabulary includes several words and phrases that people tend to use to sound cooler than they actually are. Think of tech-savvy, digital transformation and perhaps the most famous of them all: disruptive innovation. The term disruptive innovation seems to be thrown around whenever someone speaks of the slightest shake up in business, but people please, you are better than this. Let’s set some things straight and explain to you why you better start getting on top of your vocab.

Let’s Freshen Up: What Is Disruption ?
The theory of disruptive innovation was introduced in the 90’s by Harvard professor Clayton M. Christensen, outlining that disruption occurs when a smaller company with fewer resources successfully challenges an established business. This knowledgeable fellow is considered the disruptive innovation guru and to be fair, we can see why.

“Once the product or service is of equal or higher quality than how the bIg guys used to do it, basically any customer from any segment will gladly switch to the cheaper version.”

So, what Christensen means in normal English, more or less, is that disruption can occur in two ways. 

Option one is  that truly disruptive startups (mostly) first serve smaller, more price conscious customer segments, the so called low-end of a market.
At this stage they are not taken seriously by the traditional companies which provides the startups with space to experiment and develop the best possible version of the product or service. Once the product or service is of equal or higher quality than how the big guys used to do it, basically any customer from any segment will gladly switch to the cheaper version. Naturally, this version is likely to be provided by the start-up. Consequently, user volumes will skyrocket and voilà, disruption will take place. 

Option two is that disruptors create entirely new markets.
This means that they make consumers want to do or have things that the consumers did not even realize they wanted. Like what? Well, the PC might be the most straightforward example. Your grandma did not know she wanted one, but look who is your biggest Facebook fan now!

Sounds easy, right? Well, it is not. It is all very complicated because theories from Harvard professors usually are. If you are interested in the science behind the complexities of disruptive innovation, we suggest you Google this Christensen guy and get your reading glasses out. If you are the efficient type of person we suggest you focus on the practical benefits of understanding the essence of disruptive innovation.

Benefit 1: Understanding Disruption Keeps You Awake
As a business owner, knowing how to spot a disruptive innovation could prevent pretty nasty stuff, especially if you are among the originals in the business. Let’s imagine a universe where the Marriotts and Hiltons of the hospitality industry would not have laughed at Brian Chesky explaining how he put air mattresses in his San Francisco apartment to welcome strangers in to his flat. While those luxury chains were busy filling minibars and putting chocolates on their customers’ pillows, Chesky managed to build a company you might have heard of, called Airbnb. Airbnb disrupted the travel industry and Chesky, being the CEO, is now worth a modest 3.7 billion USD. We wonder if Marriott and Hilton are still laughing. If they are, they have a great sense of humour. The point is, stay alert folks, stay alert. Do not just mind your own business. 

Benefit 2: Understanding Disruption Makes You Credible
Uber is among the largest disruptors of our Millennial era, right? No, not right. According to our friend Christensen, if you apply the theory correctly, you will learn that Uber is not so disruptive after all. Uber did not come from a low end of the market neither did it create an entirely new market. Instead, it started targeting the normal folks who were already using taxi services. This does not mean that Uber is not innovative, though. Uber surely is. But an innovation is not necessarily disruptive. Whether any disruption is innovative? That we will let you figure out by yourself. Being able to have discussions about these kinds of questions with people that matter, will make you a whole lot more credible than randomly shouting “disruption” every half a minute.

Benefit 3: Understanding Disruption To Protect Your Image
Aspiring to become a disruptor? Let’s face it, being able to call your company a disruptor would be pretty awesome. However, the image of disruption is starting to change rapidly now. The term “disruption” has become its own biggest enemy, as it has become so mainstream that people might have trouble taking you seriously. Remember when your college teachers told you to think outside the box? Right, chances are you feel an urge to vomit whenever you hear someone talking about that box now. Perhaps this fate is awaiting disruptive innovation too. Those are things to consider before you label your company.

Got different ideas? Feel free to share them!  

About Amstel Lab
Amstel Lab partners with start-ups and scale-ups to commercialize your business. On the back of our experience, we have developed the unique Amstel Lab method: a tailor-made approach to maximize success. We test your markets, refine your product, innovate your commercial approach and execute your strategies. Any good idea is worth seeing through.

Want to learn more? Contact us through [email protected]

Market Research: Turning Your Fobia Into Your Friend

We all have that one entrepreneurial friend. That friend with a great idea and an even greater smile who used to put his heart and soul into developing the concept of his dreams. He spent hours in his mancave, alternated pizza nights with sleepless nights and firmly believed that success was at his fingertips. Turned out the only thing at his fingertips were his unkempt nails; his startup failed, there was no market need.

An overwhelming 90% of startups fail and the number one reason is the lack of market need. Many entrepreneurs underestimate the importance of market research because they are blinded by their vision. They get so excited about getting their hands dirty that they rush through the research phase, either because research is considered too costly or seems irrelevant at that stage. As a result, those entrepreneurs encounter difficulties in objectively understanding the business environment and could end up finding themselves trying to sell products on a market where there is no actual space for them. 

Unsurprisingly, this market space is occupied by the 10% of startups that were better prepared; market research is their goldmine. Speaking in official terms, market research is the process of testing the viability of a new product or service. Market research is the key to unlocking valuable insights and can be performed through primary or secondary sources. Primary research being new and direct information gathered among the potential audience of the product. Secondary research involves gathering data from existing sources, put simply. Sure, market research can be overwhelming. It is easy to get lost in the data and it might not provide you with the results you were hoping to see. So, why bother? Let us take a closer look at how market research will benefit your business

1. Backing Up the Business Idea
Before aiming for the moon, it might be wise to know where the moon is. This requires that impactful market trends are being analyzed so that opportunities for growth can be identified. Sometimes this means that you will need to start with an open mind and that you should trust the market research to lead you to your niche. This will create space for your business idea to be tailored so that is actually makes sense.

2. Understanding the Customer Base
Targeted interviews and surveys can help you identify who your customers should be, what their needs and wants are, and how they can best be reached. Direct target market research saves you guessing work by identifying the true market need, making it easy to cater your product accordingly.

3. Getting a Grip on Competition
Competitor research aims to identify both your direct competitors as well as indirect competitors and allows you to look into their strategies. A proper competition analysis might reveal insider information about their value proposition which simply is not visible from the outside. Understanding how the competition’s value proposition works will help you to differentiate yourself in order to be different and ahead of them.

4. Developing a Viable Business Concept 
After the market dynamics are understood and the competition’s secret spots are not so secret anymore, it is time to dive back into your own business concept. By wearing those newly obtained objective glasses, you should be able to create a concept that is suitable to the market, wanted by your potential customers and will differentiate you from the competition. This is where you can truly get your entrepreneurial juices flowing.

5. Convincing Potential Investors
Finding investors is known not to be the easiest step in developing a flourishing business. Yet, we can agree that it is rather essential. Without any doubt, investors are interested in startups with minimized risks and maximized potential returns. Market research helps to clarify just that has shown to significantly increase the chances of investors buying in to your genius idea.

 

This might all sound like a lovely fairytale for startups, but the truth is that market research is not only important for starting businesses. It is key for any company to stay on top of its game, to continuously scout for opportunities and threats and to alter its business model where necessary. Start small, dream big! 

This is where we jump in…

About Amstel Lab
Amstel Lab partners with startups and scale-ups to commercialize your business. On the back of our experience, we have developed the unique Amstel Lab method: a tailor-made approach to maximize success. We test your markets, refine your product, innovate your commercial approach and execute your strategies. Any good idea is worth seeing through.

Want to learn more? Contact us through [email protected]

10 Ways to Distinguish an Entrepreneur From a Tourist in Amsterdam

You might have noticed that Amsterdam’s streets have become rather crowded. Sure, it is largely due to tourists trying to get run over by beautiful Dutch girls on beautiful Dutch bikes, but there seems to be an other group of people on the rise: The Entrepreneurs.  There is a common belief that entrepreneurs are society’s daredevils with enough balls to follow their dreams, give up their boring corporate careers and create cool jobs in even cooler places. They are the ones brave enough to trust their guts and to wear swim shorts to work. After all, it is summer in Amsterdam and in this city we do not know what AC is.

But what characterizes successful entrepreneurs? How do you recognize this interesting species in this city packed with international visitors? Here’s a guide to distinguishing Amsterdam’s entrepreneurs from its tourists.

1. They Are Eager to Know the Unknown
Entrepreneurs seem to be more open to new experiences than normal folks. Tourists are too, of course, but then again entrepreneurs will probably have something better to do than queueing for the Heineken Experience on a random, rainy Sunday. They are curious at heart, open to a wide array of perspectives and they are willing to take risks. 

2. They Take Responsibility
Entrepreneurs seem to believe that only they are in control of their own fate. This implies that they understand that important outcomes related to success or failure are the direct result of their own actions. In other words, they take responsibility and do not hold their environments accountable for any potential problems that arise.

 

 

3.  They Are Creative
Even without mushrooms, the entrepreneurs can get the imaginary parts of their brains pumping. Regardless of the industry, the true entrepreneurs will be driven by their creative forces. It is about the ability of the brain to generate concepts that uncreative people call “out of the box”. Been there, done that.

4. They Might Persuade You to Do Things
Bringing their ideas to life involves persuading other people. Investors and co-workers require a certain dose of persuasion from time to time.

5. They Help Each Other Out
Although the Amsterdam start-up scene is quite large, the city is still small and so are its co-working desks.  As such, chances are, entrepreneurs accidentally spill 



coffee on fellow entrepreneurs’ desks/shirts/computers and get to know each other in the process; the perks of discomfort. Naturally, this provides for a great opportunity to share knowledge and expertise, which is also stimulated through concepts like Meet-Ups or Seats2Meet.

6. They Have High Self-Esteem
High levels of self-esteem are likely to be found in successful entrepreneurs. This means that entrepreneurs often feel capable and comfortable handling various situations and people. And if they do not, they know how to mask it. Chin up, shoulders back; they know how to power pose.

7.  They Are Extremely Direct
The Dutch are known to be rather blunt and honest people in general and the entrepreneurs tend to reinforce this stigma. No shit Sherlock, welcome to The Netherlands.

8. They Do Not Walk On the Bicycle Lane
No they do not. As opposed to tourists, Amsterdam’s entrepreneurs actually cycle on them to get to those cool offices, co-working spaces, you name it. Did you know that cycling is a great way to keep the brain healthy as pedalling increases the brain’s ability to grow and restore itself?

9. They Do Not Carry a Selfie Stick
Instead, entrepreneurs carry a notepad, occasionally a MacBook and a secretive smile.

10. They Are Achievement-Driven
Google any entrepreneur and the first thing you will find is some award he/she has won. Why? They love  to win and will go out of their way to enable the right SEO so that you will find out about it.

At the end of the day, it is all about synergy. It is a matter of moving forward, of going places in an efficient, Dutch way. Tourists and entrepreneurs will continue to dominate the city streets of Amsterdam, some on the bike and some underneath the bike. What a lovely city, is it not?

Missing anything? Feel free to add on! 

About Amstel Lab
Amstel Lab partners with startups and scaleups to commercialize your business. On the back of our experience, we have developed the unique Amstel Lab method: a tailor-made approach to maximize success. We test your markets, refine your product, innovate your commercial approach and execute your strategies. Any good idea is worth seeing through.

Want to learn more? Contact us through [email protected]