Tuesday, 31 January 2023 05:31

The startup killer that almost every founder ignores

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For a lot of companies, the battle for success is often lost in the margins. And quietly. 

A company can be quickly doomed by a decision that seemed less than critical, almost innocuous, at the time it was made. This is the law of unintended consequences and it's a nightmare for both startups and mature companies. It can strike in sales, technology, finance, hiring, just about anywhere.

The more mature the company, the more likely it can absorb the damage when the unforeseen becomes seen. On the other hand, I've seen the law of unintended consequences take out startups in a disproportionate ratio.

I believe I know why. And I think I've narrowed down the source of the problem.

The Case Of Market Share FOMO

Recently, I got a question from an entrepreneur who was already passing the $1 million mark in trailing revenue with a B2C product. His problem was that while he believed he could expand his market share, and probably pretty quickly, he was having a ton of trouble defining his ideal customer profile.

In other words, he knew just enough about his customers to know he didn't know enough about them to go out and find more of them.

So he was going to do what any of us might do in that situation, start talking to them. He and I walked through what his strategy should be, what questions he should ask and how to both limit and tabulate the results. But I also briefly warned him to take care when interpreting and acting on those results.

Because of the law of unintended consequences.

The law manifests itself in two ways.

  • The first is when a company creates something totally unnecessary.
  • The second is when a company fixes something that isn't broken.

Both are based on an interpretation of data that is anecdotal and not statistically significant.

Let's drill down into each.

Acting On Stories Is Trouble Disguised As Strategy

I can't figure out if it was Henry Ford who actually said this or whether the quote is accurate, but you're likely familiar with this:

"If I had asked people what they wanted, they would have said faster horses."

Regardless of its oft-debated origin, we get it. The customer is always right, unless they're wrong.

The first reason why the law of unintended consequences impacts startups more often and more harshly than mature companies can be narrowed down to two reasons.

First off, while startups are constantly beaten over the head to talk to and listen to their customers, this advice usually conveniently skips the fact that early startups barely have a customer base to begin with, let alone one they've confidently identified - which was the very problem my CEO friend was trying to solve.

The truth is that the vast majority of startups don't have a customer base, they have an echo chamber of early adopters.

And then, read that quote again. If that's indeed Henry Ford, he's not talking about asking his customers what they wanted. Yes, the quote is brilliant in its simplicity, but in the real world, Henry Ford's customers are already driving cars. Without a shadow of a doubt, they would immediately respond that they wanted faster cars.

Either way, a customer feedback exercise this early in the lifecycle of the startup is like the blind asking the blind to lead the blind.

Don't be blind. There's a reason you're the leader of your startup, and it has more to do than the ability to tell people what to do. You have a vision. Listen to your customers, that's a good thing, but don't get hit by the unintended consequences of letting them usurp your vision for your startup and your product.

Problems Without Data Aren't Actually Problems

The other way unintended consequences cause trouble is in the well-intentioned act of fixing a big problem.

But define big. Before you fix what's wrong with your company or your product, define, down to a number, how big a problem it is.

We've all been there. Either a customer or a team member or even an investor will bring up a huge problem with your product -- or a feature, or a service, or customer service, or some other way your company works. They will declare that problem to be massive, maybe even the thing that's going to take the entire company down.

Before you go into fix-at-all-costs mode, always ask these two questions first:

  1. How often does it happen?
  2. How much does it cost us when it does?

Most of the time, the immediate answer will be: I don't know. So do some digging. I'm not saying ignore every problem that isn't catastrophic, I'm just saying you have limited resources and limited time. 

Make sure you don't end up facing the unintended consequence of taking your eye off the critical and profitable functions of your organization while chasing down "crises" that happen rarely and don't do much damage when they do happen.

Interpretation Is Critical In Avoiding Unintended Consequences

Not every problem or opportunity comes at you neatly packed with quantifiable data to support a clean decision with a guaranteed positive outcome. But you always have experience and, for lack of a better word, your gut.

When people who talk about leadership talk about the X-factor of leadership, this is what they're talking about. You're never going to be able to predict every possible outcome of every decision you need to make, but take the time to think about what could go wrong.

Because the law of unintended consequences says it will go wrong.