When it comes to startups, I think a likely cause of a VC-backed company’s downfall is a result of the following:
Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.
That’s something that Fred Wilson said here, we added some color commentary here and here. That’s what I would call the B2B advice for startups (as in you are selling to investors), or rather, the macro cause of failure.
On the B2C front (or in other words, when you are selling to consumers), a very good description of a micro cause of failure hails from another VC, Rick Segal:
As you are putting together that plan where you tell the VC suits why people are going to a) flock to your site/service and b) pay for it. If there is an existing habit/behaviour you have to change, you need to plan for it.
People’s habits are very hard to break. Friction Free is even harder.
I’ll take this one step further, if your plan actually entails that you change consumer behavior, you’re better off changing your plan, company or product, than the behavior. Human beings have not really changed, we’ve adapted, for sure… but online, we’re pretty much set in our ways.
More importantly, there are some pretty massive trends taking place, as an entrepreneur, you want to identify these and build a business plan around them by leveraging these, and not going against the grain. Don’t get me wrong, where some people see fear others see opportunity, but within that opportunity, don’t try to make the world spin in the opposite direction, add to the velocity of your business plan’s execution by riding the wave.
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