Dan Martell - March 12, 2018


5 Reasons Why Most SaaS Startups Fail


Episode Stats

Length

6 minutes

Words per Minute

174.15976

Word Count

1,197

Sentence Count

54


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

Transcript

Transcript generated with Whisper (turbo).
00:00:00.120 Hi, I'm Dan Martell, serial entrepreneur, investor,
00:00:02.400 and creator of SaaS Academy.
00:00:04.040 And in this video, I'm gonna share with you
00:00:05.480 the five reasons that startups fail.
00:00:08.040 And be sure to stay till the end where I tell you
00:00:10.040 how to get access to my Idea to Exit free mini course
00:00:14.080 to help you start up right.
00:00:30.000 I've been building SaaS businesses for over 20 years and I've seen many reasons startups fail
00:00:38.860 and these are the five biggest ones. Reason number one, market problems. When you're starting off
00:00:45.160 and you're solving a problem, you need to figure out what market has the biggest pain that you're
00:00:49.620 going to introduce that product to and many startups do the opposite where they start off
00:00:55.460 with technology and then they spend time trying to find a
00:00:59.540 problem for it to solve.
00:01:01.940 And what you wanna do is make sure that when you start your
00:01:05.300 start-up that you find the market first, that you validate
00:01:08.940 it first, that you talk to early adopter customers.
00:01:11.580 Early adopter customers are special.
00:01:13.340 They're people that have had the problem themselves and solved
00:01:17.520 it in some unique way internally.
00:01:19.520 It might be putting together some spreadsheet, some scripts,
00:01:22.520 they hire a developer to build like an internal tool.
00:01:25.160 When you find those customers, they're going to be the
00:01:27.760 beginning of the opening of that market to really educate you
00:01:31.800 how you should deploy your product into that.
00:01:34.640 Reason number two, business model failures.
00:01:38.480 When it comes to building a business,
00:01:40.680 there's five different types of financial models that need to
00:01:44.980 be understood, things like the operating model,
00:01:48.080 the financing model, but at the end of the day,
00:01:52.420 as you build your product, you got to figure out what's the
00:01:54.760 price, how do I bring it to market, how do I service the
00:01:58.200 customers, what does it cost me to actually deliver that value?
00:02:01.460 And for many startups, they get hung up on the fact that
00:02:04.760 sometimes they're not charging enough for the size of
00:02:07.400 customers they're going after and that kind of customer
00:02:09.580 requires such an expensive sales process that they're never
00:02:12.640 able to make the numbers work.
00:02:14.540 Or they've got a technology that's just priced in a weird
00:02:18.180 value stream where they're charging maybe a global site
00:02:21.920 license to a company instead of doing a per-user basis.
00:02:25.760 So whatever it is in your product,
00:02:27.800 you gotta figure out what's the business model
00:02:30.060 applied to that market.
00:02:31.760 Not just building the product, which is tough enough,
00:02:34.460 not trying to figure out who has the problem,
00:02:35.960 which is, again, another big area that's ridiculously hard,
00:02:39.240 but figuring out how to structure the model
00:02:42.040 and the business side of things to really make it grow.
00:02:45.080 Reason number three, poor management.
00:02:48.820 As I've gone out there, I've invested
00:02:51.140 in about 30 plus companies, I've met thousands of SaaS
00:02:55.920 and tech founders over the years.
00:02:58.780 One of the things I've seen amongst those
00:03:00.720 that succeeded and failed is the leadership team,
00:03:03.620 the management team, the early founders
00:03:05.320 were just incredible people.
00:03:07.060 They were folks that could execute.
00:03:08.460 I still remember this one time,
00:03:10.460 there was this rising star startup, 18 months in,
00:03:13.020 they had hundreds of thousands of customers
00:03:15.140 and the reason they failed is because
00:03:16.900 of co-founder infighting.
00:03:18.900 Like the business was actually great
00:03:20.560 but the two co-founders couldn't get on the same page
00:03:23.020 in regards to the product roadmap.
00:03:24.440 So when I think of the top reasons, poor management,
00:03:28.740 lack of clear leadership, ownership,
00:03:31.540 the idea of co-CEOs never, I mean,
00:03:34.040 it's so rare that that works.
00:03:35.980 When you have two people accountable for something,
00:03:37.740 you have nobody accountable for it.
00:03:39.540 So really think about how you build the operating model
00:03:42.320 from a management point of view, who leads,
00:03:44.580 who's accountable, who's managing certain business areas,
00:03:47.580 and make sure that you empower them to be successful
00:03:50.320 because poor management is a key area
00:03:52.820 and one of the top reasons that startups fail.
00:03:55.260 Reason number four, running out of cash.
00:03:58.620 Now yes, you're probably going, duh,
00:04:00.960 not having money is obviously gonna be a reason
00:04:03.200 I'm gonna fail and that's why I need to raise funding
00:04:05.060 or that's why I'm so scared
00:04:07.040 because I only have so much in savings.
00:04:09.880 When you think about it,
00:04:11.000 it's not about how much money you have,
00:04:13.100 it's about how you deploy that capital
00:04:15.340 and in what timeline.
00:04:16.840 one of the biggest decisions a startup's gotta make
00:04:20.480 is what's the constraints?
00:04:21.740 If you only have so much money,
00:04:23.220 what's the timeline constraints?
00:04:24.640 What's the resource constraints?
00:04:25.780 What's the feature set constraints
00:04:27.360 that we could possibly build in that timeline?
00:04:29.680 So it's not about capital, it's about capital management.
00:04:32.760 It's understanding what are the milestones
00:04:35.300 that we need to get done over the next 90 days
00:04:37.420 to allow us to unlock either the sales growth
00:04:40.400 or the funding opportunity for us
00:04:42.800 to continue investing in this startup.
00:04:45.800 So, running out of cash, yes, is the reason that you're
00:04:49.060 gonna fail, but how you get there is a decision that every
00:04:52.380 founder gets to make.
00:04:53.800 So, be sure to manage those milestones, hit those goals so
00:04:58.540 that you can unlock the next level of growth in your startup.
00:05:01.620 Number five, product problems.
00:05:03.680 I've seen startups that have an incredible customer list.
00:05:07.320 They have all the opportunity.
00:05:08.520 They've got the management team.
00:05:10.260 They've got everything going for them, but for some reason,
00:05:13.800 They can't figure out how to get the simplest of features
00:05:17.200 built and even worse, they might actually have customers
00:05:20.040 spending hundreds of thousands a month on their product
00:05:22.280 and they're still deploying buggy software.
00:05:25.380 At a core level, a software business, a SaaS business,
00:05:28.720 a tech business is code and if you don't build a product
00:05:33.320 management system and a continuous integration
00:05:36.520 deployment system and the ability to manage your customer
00:05:40.960 support and pay back some code debt and fix those bugs,
00:05:45.100 then you're always gonna be fighting a tidal wave.
00:05:47.300 So I've seen over the years tons of startups fail,
00:05:50.940 not because they didn't have the opportunity,
00:05:52.780 not because they didn't figure out the business model,
00:05:54.380 not because they didn't have the right leadership,
00:05:56.740 although you could argue a lack of leadership is the reason
00:05:58.840 why a product process doesn't work,
00:06:00.740 but the product problems will be the reasons
00:06:03.140 that your startup will fail.
00:06:04.520 To recap, number one, market problems.
00:06:07.380 Number two, business model failure.
00:06:10.680 Number three, poor management.
00:06:12.840 Number four, running out of cash.
00:06:15.280 And number five, product problems.
00:06:18.780 As I mentioned at the beginning of the video,
00:06:20.160 I want to share an incredible resource
00:06:22.400 called the Idea to Exit mini course.
00:06:24.760 It's a three part series.
00:06:26.020 The link is below in the description for you to download.
00:06:28.700 I cover ideation, prototyping, team structures, fundraising.
00:06:33.200 It's all there for you.
00:06:34.880 Just click the link and get access to that.
00:06:37.300 And if you like this video, be sure to click the like button.
00:06:40.140 share it with your friends and subscribe to this channel.
00:06:43.440 As per usual, I want to challenge you to live a bigger life
00:06:46.380 and a bigger business and I'll see you next week.
00:06:50.380 Kinda weak, eh?