Most people in the startup world have heard the term “fail fast” and support the methodology of lean development, testing, learning, and iterating to minimize sinking resources into ideas that aren’t viable. But when not applied strategically, failing fast can be the downfall of a startup. Too many founders forget that in order to move forward, they need to be learning from every failure (fast or not) and that failure to learn isn’t “failing fast”… it’s just failing.
Those who are failing fast effectively are those who identify the right opportunities to invest their time vs when to take a shorter or scrappier approach to quickly eliminate things that don’t serve them.
Why is “failing fast” important?
According to CB Insights, there are two major factors at the root of failure for most startups. Cash flow and market change.
Cash flow isn’t an extremely surprising obstacle, given that the average Series A round only gives 6-18 months of runway for founders to hire and onboard a team, show consistent, sustainable growth, and prove their business model — or risk losing the attention of their investors.
Although major disruptions (like the COVID-19 pandemic) are uncommon, market change is always a risk. New technology and shifts in consumer behavior are often at the core of new products emerging. Take, for example, the introduction of the App Store for iPhone in 2008. The wildly successful adoption of the iPhone meant that businesses suddenly had an entirely new way to engage with consumers and entrepreneurs had an entirely new type of business to offer via apps. The commercial taxi industry saw its downfall with the introduction of ridesharing apps, but similarly businesses like Uber and Lyft could never succeed without widespread adoption of smartphones or marketplaces like the App Store or Google Play.
Both of these common obstacles are time-sensitive: running out of cash is a death sentence, but so is failing to pivot and maintain relevance when demand shifts the market.
Don’t trade speed for learning potential.
While testing every possible combination of events might be ruling out possibilities, this isn’t a fast way to learn. You’re trading your long-term goal of success for the speed of individual experiments that bring you no closer to reaching your big picture objective.
Take a look at Blue Apron. Initially an early player in the subscription meal-kit space, they received significant funding and a high-valuation for an innovative idea that excited a market segment.
Blue Apron ramped up quickly and was able to quickly acquire customers through referral programs, trials, and discounts, but they struggled with retention. Instead of spending the resources to learn what might retain customers, Blue Apron kept launching marketing blitzes offering discount codes to re-acquire lapsed or former accounts, while bolstering their acquisition efforts.
Blue Apron’s growth stagnated because they weren’t able to learn things that would help them solve the retention issue in the long run. Consequently, they found themselves spinning their wheels and losing market share as competitors joined the space, and investors saw their potential flatlining.
Temporarily inflated numbers might look good to the board in the short-run, but VC’s wont be so easily fooled when looking at the long-term implications. When it comes time for the next valuation, customer lifetime value is critically assessed in a business’s sustainable growth potential.
How to Fail Fast Effectively
There are plenty of examples of companies using the lean startup methodology when it comes to product development, but how do you apply it to business operations?
As a startup, there’s often a lot of ambiguity about the right way forward for the business, and “scope creep” can be tempting when everything looks possible. The answer calls for creativity that lowers cost or time-to-implement in order to get to a conclusion more quickly.
One example might be a company that wants to expand their market by going after a new vertical, but hasn’t fully determined if this is the best direction for their business. Instead of investing months of time and energy into rebranding and hiring a team to tackle new market growth, a founder can start with an exploratory outbound sales team. Hiring a short-term, contract-based workforce to do outreach or qualify leads as part of their market research can help validate the direction of the business and provide valuable insight into where they might do more with their efforts. If the pilot is successful, they can ramp up with longer contracts or in-house hires. If it’s unsuccessful, they’ve failed quickly and effectively, having learned where they need to pivot while avoiding painful layoffs, team departures, and sunk resources.
The same as when developing a product, it’s best to use the data available (such as user feedback or existing market research) to define short, measurable experiments that go further in depth on how to take action. The most important part of these experiments is ensuring that the learnings from each are used to optimize the direction going forward, and not repeated carelessly or without a goal in mind.
Want to learn how to quickly test and implement growth strategies for your business? Join us for our webinar on April 28th, 4pm EST/ 1pm PCT to learn the best ways to scale your business from TEDx speaker Bill Carmody.