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What is the number one reason startups fail? If you said running out of money or bad timing you wouldn’t be wrong. The question may be simple. But the market, business and personal drivers entailed in the fate of startups are notoriously complex.
But when I’m asked to predict a startup’s potential success or failure, here’s what I can say, and it’s not about the business plan. If the founders get into a major disagreement they cannot resolve quickly, they can kiss their startup goodbye. So many businesses I know went south because of disagreements between the founders, and I am no exception. To be perfectly candid, my last business partner and I might have chosen a different path had we taken the time to know ourselves and our approaches better. Business friction based on conflicts between the founders will sting far worse than if the cause had been a question of money or timing — and they usually have permanent consequences.
I was helping my kids tackle their college applications when I realized they offered an effective template to gauge whether a startup founder is suited to the task, or if the founders are suited to each other. It’s similar to the all-important personal essays that show a school how a person thinks, what’s behind their academic transcripts, and how they spend their extra-curricular time, along with whatever awards they won. College applications and their requisite essay questions come with prompts and obvious questions designed to shed a clear light on the respondent. The problem is it’s hard to sit down and compose the answers. But that’s what my kids did, and that’s what I recommend you do as well.
From college application to startup questions
I adapted the college essay questions to function as factfinders for entrepreneurs and investors instead of students. Essentially, I substituted terms like business, business plan, and investment for academic, college application, and admissions. Aside from that, the alignment was uncanny — and fascinating. The result was eight essential questions entrepreneurs should ask themselves, covering key factors and approaches investors need to know. Take the time to do this, and you may avoid a startup disaster.
- Describe an example of your leadership experience in which you have positively influenced others, helped resolve disputes, or contributed to group efforts over time.
- Every person has a creative side, and it can be expressed in many ways: problem-solving, original and innovative thinking, and artistically, to name a few. Describe how you express your creative side.
- What would you say is your greatest talent or skill? How have you developed and demonstrated that talent over time?
- Describe how you have taken advantage of a significant business opportunity or worked to overcome a business barrier you have faced.
- Describe the most significant challenge you have faced and the steps you have taken to overcome this challenge. How has this challenge affected your business achievement?
- Think about a business case that inspires you. Describe how you have furthered this interest inside and/or outside of the business setting.
- What have you done to make your community a better place?
- Beyond what has already been shared in your business plan, what do you believe makes you stand out as a strong candidate for your startup success?
All the answers, plus a short business plan,
If I were to lead a startup investment fund now, I would make it a requirement for potential startups to submit personal essays from each founder that answer all of these questions. I’d give bonus points for answers that came in handwritten. What I want to see is entrepreneurs conducting the same due diligence on themselves as they do on their business plans. I’d require the essays, along with a concise, one-page business plan, as part of the application process. While there would be no strict word limit on the essays, the business plan would need to be limited to just one page. Why?
We are all aware that pre-revenue business plans often come with their fair share of smoke and mirrors. Most investors acknowledge this, and simply try to determine if the entrepreneur has carefully considered the business metrics and thought of potential eventualities. They may ask questions around market size, intellectual property, financial projections, and the like. But too often, the genuine essence of the founder is completely overlooked. Consider the research we all do before buying a car (how many reviews did you read the last time?), or the inspections we undertake before buying a house (termites? foundation?). But when it comes to launching a startup and finding your business partners, with whom you will share some of the brightest and darkest moments in life, why don’t we dig deeper? As investors, why don’t we analyze the proposed company’s biggest asset: the business partners personal values and beliefs?
So let’s get beyond the pitch deck and the business plan and do our due diligence. Had my cofounder and I undertaken those essays and shared the results before embarking on our joint ventures, I know it would have made a difference. Contemplate these questions carefully. If our kids can do it, so can we.
Written by Ashwin Gulati.
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