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But 95% of startups fail!—5 reasons startup methods are still the best choice

by | Oct 22, 2016 | Insight | 0 comments

Over the last month I’ve spoken at a number of conferences related to Digital Strategy and Government Transformation. My talks have had some variation, but when it comes to improving the process of how we innovate and start the transformation journey my main message has been consistent:
“Start small, and think like a startup!”

In Adelaide I was on a panel after I delivered my talk and an audience member called me out about that advice. Their argument was along the lines of…
“Thinking like a startup is risky advice, 95% of startups fail”

I was taken aback. Sure, I know there are a lot of startups that don’t become the success their founders had hoped, but I had never before considered this stat was relevant to using lean startup methods within an enterprise.

I was happy enough with my response, I said I didn’t think this was comparing apples with apples. Startups that fail either haven’t got the right level of market-problem-solution fit and should fail, or they are competing with 60+ other startups trying to do something very similar. We don’t have that same level of competition, we just need to get our own market-problem-solution fit right and lean startup methodologies such as design thinking are best placed to help us do that.

But it did get me thinking, if 95% of startups fail, why was I so certain lean and agile startup thinking was better for large organisations and government than more traditional waterfall methodologies?

1. Customer-centricity baked in

Ahhhh… I love the smell of freshly baked customer-centricity in the morning.

But seriously, lean startup and agile methodologies at their core are about meeting customer needs and doing it efficiently. Startups exist in an extremely competitive environment, they have to deliver value and be ruthlessly efficient in how they do it.

Understanding the customer, their problems and how they go about their lives is key to startup success.

2. The living business case

Lean startup methodology is about:

  1. Being clear on your market—Specifically who’s problems are you trying to solve?
  2. Ensuring market-problem fit—Being clear on the problems your market have
  3. Ensuring problem-solution fit—Validating that your proposed solution is an effective solution for your market’s problems

In that order!

In a large organisation, innovative ideas can come from anywhere, from grass roots up to the CEO. But they should all go through this process of market validation, otherwise you’re at risk of implementing an idea that sounds good in theory, but doesn’t add enough value to customers or the business to justify the investment in change.

Often this process is missing or not thorough enough in traditional waterfall project/program delivery methods. Business cases are approved based on highly dubious estimations of savings or benefits. It’s just too hard to estimate benefits accurately up front.

Using startup thinking, you test and re-test the alignment and benefits as you iteratively deliver small releases. This allows success to be closely monitored throughout delivery.

3. Staged investment

This process of monitoring the value and benefits early on and throughout the process is a fantastic tool for the business to validate an ongoing initiative. The benefits of early releases can justify further investment.

Over time, you will reach to a point where most of the benefits have been realised and further investment just doesn’t stack up. Then stop! You’re done. The iterative approach makes this easy.

Although larger initiatives delivered through a waterfall approach are often staged and gated in order to review the benefits and make decisions about further estimates, this happens over a much larger timescale. By the time a problem with the direction is noticed, a much larger and more expensive adjustment is needed.

4. Startup failure is cheap, waterfall failure is nasty

When working like a start-up, if you’re not meeting a legitimate need, you ‘pivot’—change your solution, the problem you’re trying to solve, or the market you’re targeting. If you don’t pivot, you fail. And that’s what should happen. Ideas that don’t serve a need should change or fail.

This re-evaluation happens early on and ongoing throughout the life of the implementation. So you’re catching bad investments early, before throwing too much time or money at them. So 95% of startups are failing, but they’re doing so cheaply.

Again, a similar approach can be built into waterfall governance, but pivoting is more difficult as more detailed planning, thinking and documentation has been completed based on the initial thinking. The extra work involved in changing all that becomes a cognitive dissonance for those involved—essentially an unconscious bias against changing direction. This adds to the inertia of waterfall projects and makes it difficult for them to change direction when they need to.

If you average out the many sources that talk about waterfall project failure, you get an average of around 70%. But these 70% represent much larger failures than the small startup failures. So it’s not that thinking like a startup is perfect, or guarantees success, only that it’s a substantially better approach than more traditional ways of thinking.

5. In startups, failure is the goal

…at least initially. To a startup, failure is celebrated. It means you’ve found another approach that won’t work. Rule enough of them out and what remains is a brilliant solution.

It’s very rare for founders to succeed with their first idea. But they persist. Their success comes from that persistence. Look at many successful founders, they’re the ones with multiple failed startups and/or ideas behind them.

And the lessons learned from failure inform better ideas that have a much better chance to succeed.

Conclusion

For large organisations, there is still a place for highly detailed, planned, and governed projects and programs and highly meticulous release cycles. However, when trying to foster innovation, there’s nothing better than thinking like a startup!

Do you use startup thinking in your organisation? Share any tips or challenges below.

About the author

Andrew Ramsden

Founder Alpha Transform and host of Alpha Geek Podcast

Andrew Ramsden is a speaker, trainer, coach and podcast host specialising in digital and technical leadership.

Andrew founded Alpha Transform to help organisations keep up with the ever-changing world around us.

He has a particular passion for leadership development, especially helping technical professionals level-up and unleash the great leader within.

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