The number one reason startups fail

A new book by Harvard Professor Tom Eisenmann explores the research on why startups fail. The #1 reason you may ask? Failing to understand your customers and scaling too quickly. It doesn't matter if you've raised millions and have hundreds of employees. You can, and will, fail if you get out of touch with your customers. Tom explores examples in-depth. I recommend you check out the book. But here is a quick note that summarizes his point:

"A bias for action may tempt you to truncate exploration (searching for a compelling solution to a pressing problem) and move too soon toward expansion (building and selling a product)...the exploration phase is critical: That’s when you do the research needed to identify unmet customer needs and consider alternative solutions to satisfy them. If you are champing at the bit to build and sell and you decide to skip this research, you may find yourself locked prematurely into a flawed solution—and a false start."- Tom Eisenmann, Why Startups Fail: A New Roadmap for Entrepreneurial Success
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Investing in sales and marketing feels good. You see the effects of your work right away as you bring on hundreds of new users. You start looking at your user and revenue growth and get excited. "It's a hockey stick!" you proclaim. But before you know it, you realize you are putting in hundreds of hours of work for customers who only stick around for a few months.

I see this mistake being made every day. As a Mentor to dozens of founders and executives, as a consultant to half a dozen startups, and as a founder of the customer success function at a high-growth startup (Nylas). This was even my experience when building my second startup, Monitordroid, 6 years ago. I, like most founders and executives I work with, measured vanity and feel-good metrics like user growth and revenue. Of course, I'll get hundreds of new users a month if I am spending all my time on that. But I never stopped to talk to my customers. So it's not a surprise none of them stuck around or became paying customers after their trial period.

So how am I avoiding this mistake with my latest startup, Cicero.ly? What am I doing to do proper customer development and build early adopters?

In this article, I'll explore practical ways you can prevent this #1 killer of startups at three different stages: pre-launch, post launch, and scale.

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‍Pre-Launch: Hypothesis, Validation, and Personas

1. Think like a scientist during ideation and validation. My favorite tool is Alex Cowan's amazing Venture Design process. Get started with your personas, and go on from there.
2. I am not the biggest fan of his templates. So I use Miro. They have beautiful and easy-to-use templates.
3. A part of this process involves talking to potential customers. Though a bit outdated, I love starting with these 95 ways to find your first customers for customer development or your first sale.
4. Like any good scientist, you should not bias your research subject. Use The Mom Test as a guideline for interviewing customers. Don't start interviewing people without understanding the concepts in this book. Don't have time for the book? Check out this awesome summary.
5. For good measure, check out these 19 market testing and market validation tactics (plus 7 tools for validating). I specifically like this for the tools and unique ideas around getting commitments from users.
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Post Launch: Ensuring You're Staying True to Customer Needs

So you've launched your product. Hundreds, maybe even thousands, are starting to use it. Time to scale sales and marketing, right? Wrong, this is exactly what Tom warns about in his book. It's easy to fall for false starts, raise millions, and still fail. So how do you discover a false start and start pivoting right away?

1. Product market fit is not easy to achieve, but it's something you should continually test. The lovely people at SuperHuman gave us an in-depth guide on how to ensure product-market fit is achieved.
2. Don't stop the customer development. Keep practicing the ideas out of The Mom Test. As the CEO I aim to interview at least 1 customer a day.
   Get a holistic view of customer experiences and feedback. Every day you're getting tons of customer feedback from emails, calls, tickets, NPS, and more. Use tools like Caravel to turn these data into actionable insights you track over time.
3. Democratize user feedback. Tools like SleekPlan and Canny.io allow you to continually get feedback from users and know what is most important to them. Some companies, like Notion, have created active Reddit communities with lots of user feedback. I don't have a favorite guide on this so feel free to share one if you do.
4. Don't emphasize measuring vanity and feel-good metrics like NPS and user/revenue growth. Instead, measure churn correctly and set up customer performance indicators in place.
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Scale: Not losing touch with customers

Your startup is growing. You’ve done a fantastic job knowing and being in touch with customers thus far. But all things come to an end. It’s now time you hire dozens of employees and focus on other things. So what do you do to make sure the company is still constantly listening to customers?

1. Develop a Voice of the Customer Program. VoC, as it’s called, is a program to systematically capture, analyze and report on all customer feedback—expectations, likes, and dislikes—associated with your company. Basically, set up the infrastructure and protocols in place to automated and embed customer obsessions into your company. There is a fantastic guide on this here.
2. Ensure your executives, directors, and managers are truly putting customer success first. This awesome article has 9 questions you can ask yourself and your team. It ranks good answers against bad answers.
3. Want to nerd out even more on 90 pages of tips, tools, questions, and playbooks on ensuring your company is aligned on customer success? Check out this guide.
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Your obsession with customer needs should never end. It is what will give you the fuel to build your inbound engine. It is the catalyst for morale. It is the inspiration for features and products no one thought possible. It is your greatest asset. So, I’ll leave you with this quote from the most customer-obsessed CEO on Earth as it perfectly exemplifies everything I’ve been saying.

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“There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples.”- Jeff Bezos.

originally posted on caravelapp.com