Friday, March 28, 2014

Chances are...

Y-Combinator founder Paul Graham has heard a lot of pitches and rejected most of them.

Over the past few months I've been searching for data on the success rate of new products and startup businesses. The consensus isn't good. Several articles, mostly from business magazines, agree that the chances of surviving the first three years are poor (25%) to dismal (10%). The Wall Street Journal recently reported that three-quarters of venture-backed firms in the U.S. don't return investors' capital. Compare that with the odds of winning at craps (49.3%) and you might wonder why venture capitalists don't find another line of work.

One of the most well known funders of startups is Y-Combinator.  Since 2005, they've been investing about $100,000 each in a few dozen startups per year, plus providing a lot of other support. The fledgling businesses move to Silicon Valley and over a period of 3 months YC helps them polish their product and prepare to pitch their plans to other investors at an exclusive "Demo Day" attended by a carefully selected, invitation-only audience.  After that, the YC Alumni network continues to provide support for for the life of the startup.

A recent article at, summarizes the main reasons startups fail; Incompetence (46%), lack of experience either in management (30%), or in the line of goods or services being offered (11%). (Note that those are the things which Y Combinator tries to overcome with their support.) 

Those statistics aside, Graham says there is basically ONE mistake that kills startups every time:

Not making something users want.

You would think that would be pretty obvious. I mean, nobody would want to build something that nobody else wanted, would they? And they certainly wouldn't want to blow $100,000 of their own money doing it.  We'll come back to this point a little later. For now, you might want to think about  some of the traits which keep entrepreneurs going; their passion, enthusiasm and optimism and how they may derail what otherwise might be a terrific opportunity.

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