Background
The following is a blog post this author made on LinkedIn on July 5, 2021. I don’t know if I am stepping on copyright issues by re-posting it here: my simpleminded thinking is I wrote it, I own the copyright. Heck, I’ll take it down if someone sees differently; I’ll cross the bridge when I come to the river…
Last week, during a conversation with an individual I know, I was obliquely informed that I had "failed" as an entrepreneur. Or at least, not successful. There was, I must admit, definite grounds for such an observation, painful though it was to hear. After all, my venture was incorporated in late 2011 and has been in business since and without revenues to show for it. Not profits, revenues. Repeat entrepreneurs or those aware and informed of the startup world would label us the "walking dead". I am quite honest with myself and this is a fact that has been persistently in my consciousness, rather like an itch that never disappears. Still, how fair is the assessment if one does not fully know the industry or the several constraints we are up against that typifies most technology startups?
Thinking about this conversation made me realize that the stages a first-time entrepreneur goes through is verily like the 7 stages of grief: denial, guilt, anger, depression, acceptance, reconstruction, and hope (this is the famous Kubler-Ross Grief Cycle; the original description had 5 stages but the updated one is possibly a little more realistic and also aligns with what I am about to discuss - btw, the graphic above is the K-R Change Curve).
Managed Risk
The fact is that a startup venture is a mix of a coin toss (or roll of the dice, throw of the dart at the dart board - take your pick) and a managed risk scenario. The rational entrepreneur - educated, well informed, experienced - perforce has to control for risks of failure. To the extent one can, this could be reduced to some extent, but could all of the risks be eliminated? My own assessment is that they never can be as extraneous factors (industry, environment, technology, legal and regulatory, customer, acts of God, etc) are all in a state of flux that one can never fully control. Not all industries are alike and some are more progressive than others for historical and other reasons. Again, some sectors are hugely regulated while others are lightly so. Some have life and death implications. Industry history and structure have a continuing impact on how it evolves and the degree of receptivity to new business models. Technology can disrupt a whole industry in a matter of a few years while stretching out its evolution in the form of embrace and impact in other industries over a long period of time.
That said, I have had a long time to experience and reflect on my "failure" as an entrepreneur. Is it a failure? This is a question I often ask myself as the word has a definite meaning in the business world. A startup venture "fails" when it goes out of business. It cannot pay for product development, resources, other creditors, or in its marketing and sales efforts. In other words, it shuts its doors. We haven't done that. On the contrary, we have zero debt, have continued with product development, paid for all our resources, partnered with name brand vendors, and are ready for the market. We have fine-tuned our value proposition. Our problems, indeed, have been two-fold: first, aligning our purpose with perceptions and acceptance in the market that goes deeply into the structure of the industry we are in; and second, come up with a value proposition that resonates with the stakeholders.
The pandemic played a hand, both negatively and positively. On the negative side, while we were among the early birds to articulate personalized health delivered through remote means (we were doing this from 2011 onward), the sudden emergence of the virus focused attention on and galvanized a whole army of would-be entrepreneurs who had otherwise no exposure to the industry. It caught us flat-footed as the new entrants were able to raise huge capital for development that we could only do so in increments as a bootstrapped venture. On the positive side, it has helped our cause as both our model and the inherent value for participants is now easier to explain. We do believe, as a consequence, that the upward curve that has been missing in our short history lies ahead of us.
Waiting for Godot
Success or failure is not only often a reality but a state of mind, a perspective. That we have survived, to me, is a mark of success: the facts on this are incontestable - about a quarter of all startups, in whichever industry, fail in the first year (ie, close their doors as described above) and 50% by the third or fourth year. We have been witness to both kinds. In all, 90% of all startups fail. In fact, angel investors assume as a matter of routine that 50% of investments would go waste and most others would barely return invested capital. According to the US SBA which has detailed data on some 35 million small businesses in the country, businesses fail for a number of reasons such as capital, market segment targeted, product mis-aligned with need, bad partnership and marketing, lack of expertise, etc. By this reckoning, survival itself is a success, if only partly so. The long road still lies ahead and the question really is could the road ahead be traversed without having to consider the finality of shutting the doors?
That is where the 7 Stages come in: the longer one survives and goes through the various stages, the better equipped the startup is to make it past the final stretch.
Here below, is my conclusion in terms of what a startup goes through in its various lifecycle stages as experienced most critically by its founders. Most startups fall off the wagon along the way as per data above, but those that continue to survive the dangerous curve balls thrown at it by sundry forces live another day to tell the tale. And as they survive every onslaught they gather valuable pieces of knowledge that accumulate as what we term wisdom. At the end of the day, it's wisdom that is predictive of mere survival translating to genuine success - one that ensures a product or service is accepted in the market, revenues come in, and to craft a profitable story. Those that shut their doors and did not wait for wisdom to arrive to be able to use it effectively will always wonder - what if?
What constitutes this wisdom? My experience tells me it is a grab bag of things: memory for how things have worked in the past both internally and externally (and what has not worked); things to take care of as priority before focusing on other stuff; an idea of what expenditure is important and what is not (venture-funded ventures often lose sight of this because, to recall the Obama campaign slogan, there is the impulsiveness of "Yes, we can"); better appreciation of the relative importance of many hyped-up ideas that is thrust at us by the media and conferences; how to discriminate between good versus poor value; evaluating people, especially third party "experts"; human behaviors and what can influence or encourage good ones; and getting better at managing expense.
Most of these do not come to us naturally if one hasn't had experience before. In fact, that is the primary difference between one who has had prior experience - either as a repeat entrepreneur or one who comes from a "business family" - and a first-time entrepreneur (repeat entrepreneurs or those coming from a business family mostly do not suffer from the sine curve of expectations described below).
The 7 Stages of Entrepreneurial Startup Founder Expectations
Optimism: Starting a venture is like nothing else. It's a time of infinite optimism and energy.
Euphoria: As the venture gets incorporated, hard assets move in place, and the founders gather together, one cannot control the euphoric sense of having commenced a historic journey. No matter that the product is yet to be developed and the market tested. Much of it is still in the future but for first-time entrepreneurs, this is it. They have arrived. Exchange of business cards is affirmation.
Reality: As John Lennon piquently observed, "reality leaves a lot to the imagination". Founders, who thus far have largely imagined their new world, get to contend with reality pretty quickly. Everything from regulations to tax filings, software development to meeting milestones, new hires to finding they never show up, missed deadlines to promises to keep, frustrations of commuting to complaints from staff and vendors, tension in raising capital, myriad pitches to investors to no avail...
Depression: Slowly, but slowly, the early days of uninhibited euphoria give way to contending with the dark clouds of existential angst. "Why am I doing this at all?" is a thought that comes into the minds of all the founders, sometimes spoken aloud, most often not.
Pessimism: The long slow and continuing grind has now begun to take a toll.
Pragmatism: Realization that things cannot be controlled, that one has to live with uncertainty and flux, and to develop workarounds to keep the vehicle moving is the first sign of acceptance of reality. The founders now begin to ditch their heady assumptions and focus on pragmatic approaches.
Wisdom: The last phase of entrepreneurial "growing up" or maturity when many lessons have been learned and put into practice.
While every founder is likely to traverse all the above stages while managing her startup venture, the time span will be different depending on context, industry, geography, and ability to source capital. For most, it is even more certain that the time spans will be long - anywhere from 5 to 10 years. Assuming they survive at all. In a very small fraction of cases (that speaks both to survival rates and investor funding rates), the above could get compressed with the very, very few lucky ones even skipping some steps. Don't bank on being one of them. The odds are against you. But it does beg the question: How do you define success for yourself and your venture? Having a good handle on this and accepting its terms of reference will do you good.
Seeing Differently
The above is, of course, different from the "entrepreneurial process". Depending on where you look, you will find 3, 5, 7, 9 and 10 stage processes. They essentially describe growth phases or phase transitions in the lifecycle of the organization. For example, an article in the 1985 issue of HBR described 5 stages in the growth of a small business: Existence, Survival, Success-Disengagement, Success-Growth, Takeoff, and Resource Maturity. Note the focus is entirely on the enterprise organization. As also the Entrepreneurship Manual from the Duke-Fuqua School of Business: Idea Generation, Opportunity Evaluation, Planning, Company Launch, Growth. Similarly, Fool.com has a different take - one of processes through 6 stages. Entrepreneur magazine described a 7 stage growth chart. This essay, however, describes cognitive or emotional phases in the life of the entrepreneur, or founder, in steering his or her venture. They are drawn from a lived experience and from observations of other startup ventures.
In summary, one may observe stages in the experienced life of an entrepreneur. These stages could help identify the source for stress or frustrations and hopefully help re-align one's expectations accordingly. The startup world is not deterministic in a purely mathematical sense and even engineers - who should know better - fall prey to its obvious charms and forget the caveat.
References
The Five Stages of Small Business Growth, by Neil C. Churchill and Virginia L. Lewis, Harvard Business Review, May 1983 (https://hbr.org/1983/05/the-five-stages-of-small-business-growth)
The Entrepreneurial Process, The Duke Entrepreneurship Manual, Duke-Fuqua School of Business (https://sites.fuqua.duke.edu/dukeven/selected-topics/the-entrepreneurial-process/)
The Entrepreneurial Process, Four Phases of Product Lifecycle, Babson College (https://faculty.babson.edu/academic/eship/MappingTheTerritory_Babson/Babson_entreprenuership.pdf)
The 6 Stages of the Entrpreneurial Process, The Blueprint, A Motley Fool Service (https://www.fool.com/the-blueprint/entrepreneurial-process/)
The 7 Stages of Entrepreneurship, Entrepreneur, April 2017 (https://www.entrepreneur.com/article/293463)
#startup #entrepreneur #success #failure #Kubler-Ross #changecurve