No matter how amazing your idea or how skilled the team you’ve built around you, building a fledgling technology company into a mature business is a gargantuan task.
It’s no wonder most tech entrepreneurs fail in their first (and often subsequent) attempts. According to Upsilon IT, 25% of tech startups fail in their very first year, 63% fail sometime after that, and only 10% stick around for the long run. That’s an overall failure rate of 90%.
Can you guarantee your startup a place in the other 10%? Of course not. However, you can implement some tried and true lessons that have served successful tech entrepreneurs over the decades, across a range of business and investment climates. Here are a dozen you’ll definitely want to keep in mind as you get busy building.
Table of Contents
1. Pick Your Spot and Be Ready to “Drop In”
Serial tech entrepreneur Sky Dayton compares successful founders to skilled surfers. They wait patiently for a massive wave to crest, pick their spots carefully, and drop in at exactly the right moment (or close enough to it, at least).
No one has perfect foresight, but your ability to see where the wave is building…or where the puck is headed, to use another common analogy…could be the single most important factor in your startup’s eventual success or failure. In other words, however fast you feel compelled to move once your startup is up and running, you’ll thank yourself for going slow, observing the market, and homing in on an opportunity with great upside.
2. Be Realistic About What’s Ahead
Be skeptical of founders who gloss over their early struggles. Rocky rollouts are the norm, not the exception. And while it’s fine to hope for the best as you scale your business, it is absolutely critical that you prepare for the worst. Reality is likely to fall somewhere in between, but you don’t want to be surprised by the downside.
Make sure your founding team and early hires share this perspective as well. In the first years of your company’s life, you simply can’t be misaligned on the basic question of the difficulty of the task ahead.
3. Self-Fund Until You Can’t Anymore
Make no mistake: Self-funding or “bootstrapping” is not the easiest way to build a new business.
“It can take years to get a company off the ground, so entrepreneurs must get creative with their finances to keep their businesses going,” says Sean Peek, senior analyst with Business.com.
This is one big reason that many entrepreneurs choose to look for outside financing very early in the business development process, often before they’ve exited stealth mode and announced to the world that they’re open for business.
However, self-funding has some key benefits, the importance of which might be apparent only in hindsight:
- Retaining full founder control over early business decisions that could prove crucial for the enterprise’s long-term survival
- Maintaining the upside of a 100% founder equity stake
- Ensuring greater maneuverability in future funding rounds
- Having fewer “people at the table” during the company’s early stages, when decisions need to be made quickly and decisively
To be sure, there are benefits to seeking external funding early as well, and they could outweigh these advantages. You know what’s best for your business; just be cautious about making moves that are difficult to undo later.
4. Be Cautious With Company Equity
One important reason to bootstrap until you can’t anymore is to preserve your equity stake. If you have co-founders, they have an interest in this as well. Every equity funding deal you do represents a constraint on your upside potential, even if it remains confined to paper for many years.
Many serial entrepreneurs and business funding experts recommend looking to other sources of outside money before giving away any equity. Unfortunately, traditional banks tend to be reluctant to lend to startups, especially pre-revenue startups, so it can be difficult to find financing that doesn’t require an interest in the business as collateral.
5. Don’t Be Afraid to Fail Fast (For Real)
If you’ve been in the tech world for any amount of time, you know that conditions change quickly here. All the market analysis in the world won’t prevent a black swan event from decimating your business model, and unexpected changes in the customer behaviors or technologies your idea depends on could have less dramatic but no less harmful impacts.
All this is to say that if conditions really take a turn for the worst, you must be prepared to admit defeat, cut your losses, and hopefully pivot to a new idea. Throwing good money after bad won’t achieve anything except making you and your investors poorer.
6. Surround Yourself With People “Smarter Than You”
You’ve heard this one before, but maybe you’ve resisted it. After all, few of us like to be made to feel inadequate, let alone stupid.
But that’s missing the forest for the trees. You can’t possibly be the best at everything; humans just aren’t built that way. Great founders devote a lot of time to finding people who excel in complementary skill sets and setting them up for success.
7. Focus on What You’re Great At and Delegate the Rest
Great founders have a skill that’s closely related to finding and lifting up complementary talent: effectively delegating projects and tasks to these smart, capable roleplayers.
“Effective delegation is a cornerstone of great leadership,” says business consultant David Grossman. “When leaders don’t delegate enough, they miss a chance to help their team grow.”
As your startup matures, you’ll soon find yourself unable to personally oversee every aspect of its operations. While this is a good problem to have, it demands a solution that’s difficult for many hands-on founders: placing trust in capable managers and giving them autonomy to do what needs to be done.
8. Stay Lean, But Don’t Fight With One Arm Tied Behind Your Back
Every founder has to balance the tension between readying the enterprise for expected future demand and conserving resources during the pre-revenue and pre-profit stages of growth.
The ideal medium is “lean growth,” where you add people and teams as needed to expand in an orderly fashion but don’t burn through cash before you’ve achieved escape velocity. Verging too far into the “lean” direction is counterproductive. Taken to the extreme, it could end up strangling the business.
9. Keep Mission-Critical Functions In-House As You Grow
Much like you reserve the tasks that you’re really good at for yourself and delegate the rest to other, more capable people within the organization, you should keep the functions most important to your company’s success in-house and outsource others to external partners.
For example, unless your company has an innovative solution to human resources or accounting, you can probably safely assign basic financial and personnel tasks elsewhere, likely involving some combination of software automation with expert human oversight.
In contrast, anything that directly touches your core business or solution set is best done internally, both for reasons of competency and to preserve any mission-critical trade secrets.
10. Begin Exit Planning Early
Exiting a startup in an orderly, profitable fashion takes longer than many first-time founders realize. This is true no matter how you choose to make your exit. It’s never too early to begin thinking about how you’ll navigate this crucial juncture when it arrives, nor to begin putting the pieces in place for a smooth, mutually beneficial transition.
11. Pivot Before You Have To
Successful tech entrepreneurs are observant. They keep close watch on their competitors to spot signs of trouble — or opportunities — within their industries.
They are also nimble. When they spot challenges or opportunities, they pivot quickly to avoid unnecessary pain or capitalize on the potential upside. They do this before it’s absolutely necessary to do so, giving themselves more runway as they adjust.
12. Listen to Your Customers
“The customer is always right” is more than a memorable slogan. It’s a fundamental “constant” in the tech world, for better or worse. If you’re not receptive to your customers’ feedback or responsive to their needs, they may choose to take their business elsewhere.
Build Better in Any Business Climate
Too often, the entrepreneur community talks about “business climate” as if it’s something out of our control, something that just “happens” to us while we’re going about our day-to-day. This is an unhelpful way to think about it.
In fact, get too deep into this line of thinking and you may actively destroy — or fail to create — value in your own business. You don’t want that, do you?
You might not have personal control over the investment climate in any particular quarter or year, nor for any particular sector of the tech economy. However, you do have control over your response to changes in the business environment and total agency over how and when you pick your “spot.”
As the old saying goes, it’s always a bull market somewhere, whether it’s AI, advanced mobility, quantum computing, or anywhere else. Your first big test as a founder is figuring out where the action is about to be, and then putting the pieces in place to take advantage.
