• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to secondary sidebar
  • Skip to footer

Scale FinanceScale Finance Logo, Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Charlotte · Raleigh – Durham · Chapel Hill · Triad · Southern Pines · Coastal Carolina
Closing the GAAP to Scale Your Business
The FINACA Logo
919-230-4667
Scale Finance, LLC, Financing, North Myrtle Beach, SC
  • Home
  • Services
    • CFO & Controller Services
    • Capital Raise Services
    • Business Valuations
    • Mergers & Acquisitions
    • Professional Consultations at No Cost
  • Professionals
    • Partners
    • Charlotte Team
    • Raleigh – Durham – Chapel Hill Team
    • Greensboro-Southern Pines
    • Coastal Carolina Team
  • Client Experience
    • Closed Capital Raise Transactions
    • Closed M&A Transactions
    • Client Endorsements
    • Information Technology
    • Healthcare, Biopharma & Medical Device
    • Services, Energy, Industrial
    • Consumer, Retail, Media
    • Real Estate
    • Private Equity Groups
  • Recent News
  • Knowledge Bank
    • Best Practices in Scaling Companies
    • Entrepreneurial Management Skill- Building
    • Financial Management
    • Mergers & Acquisitions
    • Regulatory Developments
    • Venture Capital
  • Contact Us
    • Charlotte
    • Raleigh – Durham – Chapel Hill
    • Triad – Southern Pines
    • Coastal Carolina
  • Joining Our Firm

The 7 Signs of Failure for Internet Startups


Source: Bjoern Lasse Herrmann – co-founder of Blackbox, which runs a startup accelerator program and Startup Genome, a research and development project for uncovering the mechanics of startups.

Months ago, my team at Blackbox set out on a mission to crack the innovation code of Silicon Valley and share it with the rest of the world. Now we are releasing a report based on the results of our first survey. We want to thank Sandbox, FastCompany, Inc., ReadWriteWeb, Hackernews, youngupstarts, Yourstory.in and many more who helped us spread the word and gather a total of 650+ survey results. And a special thank you to all our fellow entrepreneurs who shared information about their company for this cause.

Here is a sneak peek of our results, showcasing 7 signs of failure:

1. Not Working Full Time
If you decide to start a company, don’t do it half-hearted. Creating something from nothing is hard. Succeeding almost always requires going all in. Temporary moonlighting is permissible but significantly curbs performance and potential.

Many times we hear people say they will work half time until they have raised money. Here you can see that people who work half time are able to raise money, but about 24x less than founders who go full time. They also have trouble building up the intensity required to drive the user growth needed to validate interest in their product. Working full time is especially critical for startups with a product that requires critical mass to be valuable.

2. Solo Founder or 4+ Founders
If you make the commitment to go full time, your first big challenge is to convince someone else to join your company who will fully commit to making the company successful. If you can’t convince at least one person to join you, or you believe you can do it all yourself, it is a strong signal the company isn’t likely to succeed. However, trying to find safety in numbers by having too many people to join the founding team doesn’t turn out very well either. The right number seems to be a founding team of two to three people.

  • Solo founders raise less than 50% of what 2-3 founders raise. One reason for this is that during fundraising, solo founders are now forced to split their time and attention between the product, the business and raising money
  • Solo founders have 290% less user growth and are 16% more likely to scale prematurely than founding teams of 2-3
  • More than 42% of the startups that are moving more than 20% slower than the average time needed to reach the scale stage are solo founders.

3. Don’t Have a Technical Co-founder
If you start a technology company and nobody on your team is technical, you are unlikely to succeed. Unless the company is in a very sales-intensive market, the founding team should be at least 1?3 technical, 50% ideally. However, too many cooks in the kitchen are not good either.

The first problem you have by not having someone technical as part of the founding team is that you do not have anyone who has full ownership of the product. The business founder doesn’t own the product because they don’t understand the code, and the employees or consultants don’t own the product because the company is not theirs. As a result, companies with no technical co-founder are almost twice as likely to scale too early. They also have 3-5 times less user growth on average and need 7-8 months longer to reach the scaling stage.

4. Wrong Founding Team Composition for the Wrong Type of Startup
Once you’ve found your team, you should make sure to tackle a market and build a product that suits the strength of your founding team.

We identified three major types of Internet startups with various sub-types. They are segmented based on how they perform customer development and customer acquisition. Each type has different time, skill and money requirements.

The Automizer (Type 1)
Common characteristics: self-service customer acquisition, consumer focused, product centric, fast execution, often automize a manual process.

The Social Transformer (Type 1N)
Common characteristics: self service customer acquisition, critical mass, runaway user growth, winner take all markets, complex ux, network effects, typically create new ways for people to interact.

The Integrator (Type 2)
Common characteristics: Lead generation with inside sales reps, high certainty, product centric, early monetization, SME focused, smaller markets, often take innovations from consumer Internet and rebuild it for smaller enterprises.

The Challenger (Type 3): Large but rigid markets, strong sales, enterprise market
Common characteristics: enterprise sales, high customer dependency, complex & rigid markets, repeatable sales process.

Business heavy founding teams are more likely to succeed with a startup that requires enterprise sales, whereas technical heavy founding teams are more likely to succeed with a self-service consumer Internet startup. Balanced teams perform well with all types of startups except those that require a lot of enterprise sales.

For example, in our data set, 35% of business heavy founding teams were doing Type 1 “Automizer” startups before product market fit. But after product market fit only 12% of the business heavy founding teams were doing Automizer startups. This decrease indicates that business heavy founding teams do not do as well with Automizer startups.

5. Don’t Pivot at All or Pivot Too Often
If you have finally found the perfect founding team and a product and market suited to your team’s strengths, your next big challenge is having the determination to make your vision a reality while being flexible in how this is achieved. The chances that you will need to modify some significant aspect of your business is very high. When real-world feedback shows you that something isn’t working, you need to adapt. However, changing your business too frequently will leave you running in circles. We have found that founders who pivot 1-2 times have 100% more user growth and are 48% less likely to scale prematurely. (We told founders to consider a pivot a major change in their business.)

6. Don’t Listen to Customers
Pivoting is almost always a decision that is made with incomplete information and under conditions of extreme uncertainty. But taking the time to gather feedback by interacting with customers significantly increases the odds of making a good decision. We have found that startups that track their metrics and listen to customers have 400% more user growth.

7. Scale without Validating Market
Lastly, one of the most critical mistakes we found is that founders get too anxious about making progress and scale their company prematurely, before validating their market and streamlining their customer acquisition process. If they have raised a lot of money or have a lot of determination, the result is typically a slow death. If they have neither, then a speedy death is likely.

Startups that scale after product market fit raise 3.2x more money, and have 1.5x more user growth. Interestingly, startups that scaled prematurely had been working just as long as startups that scaled appropriately.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices in Charlotte, NC, the Triangle, the Triad, Southern Pines, and Wilmington with a team of more than 30 professionals serving more than 100 companies throughout the region.

Primary Sidebar

Knowledge Bank

5 Rules for an A+ Board Meeting for Investor-backed Companies

Understanding & Using Your Cash Flow Statement

Why Business Valuations are Helpful (& What do they Typically Cost)?

Managing Merchant Fees – Role of Zero Fee Processing

Can Accountants Value a Business?

Personal Guarantees – Should You Grant One?

10 Pieces of Advice When Someone Wants to Buy Your Company

Convertible Note Financing – Payback Time

Due Diligence Fiasco – A Look Back at HP-Autonomy

Applying for Business Loans – Hard Credit Checks

7 Ways a Business Name Generator Can Help Entrepreneurs

Citizenship by Investment Overview

Understanding the True Cost of Employee Turnover

How to Think About Valuation When Raising Venture Capital

What it Takes to Shift to a Recurring Revenue Model in Hardware & Software

Differences Between Major SBA Loan Programs – SBA 7(a) vs. SBA 504

5 Reasons Entrepreneurs Don’t Get Funded (Which Are Not Their Fault)

Balancing Profitability Versus Growth

Bootstrapping Your SaaS Business – What’s Changing

Best Options for Small Company Loans

Explore the Knowledge Bank…

Secondary Sidebar

Recent News

SF Closes Acquisition of Midwest Outdoor Resorts for Travel Resorts of America

Scale Finance Advises FX HedgePool on $8M Series A Funding

Scale Finance Closes $7 Million Senior Debt Financing for Travel Resorts of America

Scale Finance Advises on Acquisition of Falcone Crawl Space & Structural Repair

Congrats to Payzer for Closing $23 Million Equity Financing

SF Client Headbands of Hope Closes Strategic Growth Investment

SF Assists Semper Investment Company in Acquisition of ACM Removal

SF Client SentryOne Acquired by SolarWinds (NYSE: SWI)

Scale Finance Assists GPM with Acquisition by Netsmart

SF Client Broadstep Behavioral Health Continues National Growth Through Acquisitions

SF Client Impact Financial Systems (IFS) Acquired by iPipeline

Scale Finance Assists TrueLearn with Investment by LLR Partners

Scale Finance Assists Textum Weaving with Investment by Quad-C

Scale Finance Closes Debt Financing for Horizon Eye Care

Scale Finance Closes Acquisition of Horsepower Site Services by MCG Civil

Scale Finance Closes Growth Financing for Celerity

Scale Finance Advises on Acquisition of Reliant Transport

More News…

Footer

Media

Scale Finance Managing Director Dave Gilroy interviewed on WSIC Radio (local Fox affiliate)

/wp-content/uploads/2014/02/David-Gilroy-Interview-Local-Biz-Now-2-7-14.mp3

Entrepreneurial Tips

  • Funding Tips from Scale Finance
  • CIE Life Sciences Panel Discussion
  • Why Use Fractional CFO Services

Sign Up—Finance Bulletin

Monthly insights into corporate finance for entrepreneurial companies

Sending

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

Return to top of page

Copyright © 2008–2023 Scale Finance, LLC
Securities and offering services through Charles Towne Securities, LLC. Members FINRA and SIPC.