A Startup Reality Check

17 Oct

AmjSXekCMAE17swIn 2012, I made a tweet about how excited I was to have found a new home for my 50GB photo collection.  SnapJoy had a “life raft” tool which pulled your photos out of Flickr–a service widely viewed as a sinking ship at the time.  SnapJoy was also the first US site to be listed on the now venerated Beta List.

Startup Swag

That tweet earned my baby girl a SnapJoy shirt and stickers. Gotta love startup swag.

The Beta List alums from three years ago are an excellent reminder of the life cycle of a typical startup.  Of the 50 oldest US companies listed, only six could be considered still alive. Of those, I’d say only two are thriving: Fitocracy and Trapit appear to be experiencing healthy growth.  At least one other company, SnapJoy, was acquired before being shut down.

The remainder is a tear-stained list of startups that never made it into orbit.  Some domains are long gone while others are a snapshot of the last days of business. From mediocre ideas that petered out under weak demand to awesome apps that never caught critical mass, the 44 failed ventures are a stark reminder of the challenge ahead to anyone looking to play startup.

Traits of the Survivors

I found it fairly easy to predict which businesses would be shuttered, but I was surprised a few times by ones that were still active.  In the end, the surviving companies seemed to fall into one of a few buckets:

Zombie/Hobby Site

Even if the business is still online after three years, it’s not necessarily going gangbusters. I know firsthand that one can develop several sites that ride on the coattails of one or two other successful projects.

If the service provided by the site can be handled soup to nuts by code, there’s no limit to how long it could remain online. However, it helps if there is a funds collection scheme to keep the site from being a pure money sink.

Home Business

Lots of these startups end up turning into a one or two-person business. A great number of successful web companies are tiny organizations creating passive income for their tech-savvy owners.  My former company, BookRags, is a great example of that.  They were bought out by a “mom and pop” who added it to their portfolio of semi self-running companies.

Thriving Small Business

At two to three years since launch, it’s easy to tell which businesses have truly made it. Just look for the active social media presence, recently updated apps, active blog, and bustling careers page. Press mentions and recent reviews by actual customers are also great signs.

Just four percent of my sample ended up in the thriving category. This is where most startup owners want to be after 24 months, but neither the investors or the owners will be retiring off these ideas just yet. I’m beginning to see why being a successful VC must be such hard work.

Making Use of a 4% Success Rate

I suggest anyone looking to launch a new startup go back to the oldest listings on Beta List or TechCrunch. Think about the successes or failures listed there and compare those ideas and their context to your own.

“Make sure your exit strategy covers an exit to any floor.”

You can succeed where others failed, but you need to ensure that your unfair advantage is more than just the bluster you put into your pitch deck.

Play your cards wisely.  Don’t be afraid to create something new and exciting, but make sure that you or someone you trust has the ability to convince you that it’s time to cut your losses.

Perhaps most importantly, make sure you’ve planned for sub-stellar success. If your $50 million idea turns out to only net $200K a year, do you choose to pull the plug, pivot, or run it as a lifestyle business? Make sure your exit strategy covers an exit to any floor. This may be one of the toughest choices an entrepreneur has to make, at least in terms of their ego.

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One Response to “A Startup Reality Check”

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