You learn a lot from your successes. You learn even more from your failures. And you learn awfully lot from seeing at least a thousand cases where some have succeeded and many have failed.
Dalton Caldwell is a managing director at Y Combinator, a US technology startup accelerator and venture capital investment firm. Grooming the companies and investing in them is his day-to-day job. It provides him with quite a unique perspective to talk about what is working and what is not in the world of startups.
Here are my 3 takeaways from watching his interview on YouTube:
Lesson #1
There are several reasons why startups fail — poor product-market fit, not listening to the customers, and running out of money, to name a few. But the most common reason has nothing to do either with the product or with money. The failure just happens when the founders lose hope and kind of resign themselves from the company.
In numerous success stories (take AirBnB as an example) the founders should have given up several times. Despite the scepticism they encountered on every turn they persevered with their almost irrational desire to keep going and refusing to die.
Lesson #2
There is a simple test to determine whether a startup needs to pivot or not. You have to look at the number of options for growth remaining with the current model. If the founders have tried everything and nothing has worked, then you have to pivot.
A good pivot builds on what you have learned while working on your previous idea. It should not give you a feeling of jumping into cold water. It should rather feel close and familiar, like going home where it is warm and comfy.
Lesson #3
There are some ideas that everyone gets attracted to. Dalton calls them tarpit ideas. They are super-appealing, you get hooked on them but then you find yourself stuck and can’t pivot out.
A true tarpit is a product or service that you can not get a good initial validation for — despite the overwhelming enthusiasm about the idea from everyone you’ve been talking to. By definition, it is a tarpit only if it seems like it is not.
As a final thought this time, the importance of the TAM (total addressable market) is highly dependent on the stage of development the company is in. It does not make much sense to be super pedantic in estimating the market size for a pre-seed-stage startup. There are more important questions to consider — How are you going to get users for your product or service? How do you intend to grow your business?
For those willing to try and pick top lessons of their own here is the link.
This note was first published on Medium.com on 26 September 2024