The number one reason why companies fail, cited by 42 percent of the companies that went out of business, was no market need.
A good example is Treehouse Logic, a startup that built product customization software for ecommerce sites. Like countless others, they saw their faults clearly only in hindsight. They said they couldn’t scale up fast enough to make the economics of it work. Big companies didn’t need to go outside their own internal development team for customization and small companies couldn’t afford it.
The disappointed CEO Dave Sloan wrote,
“Startups fail when they are not solving a market problem. We were not solving a large enough problem that we could universally serve with a scalable solution. We had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etcetera, but what we didn’t have was technology or business model that solved a pain point in a scalable way.”
Everything was great, except for the fact that they didn’t know who they were. They couldn’t say what they were best at, in a way no one else was. So they rode into battle without the capabilities they needed.
If they had the technology and the business model they were missing, it still may not have worked. We will never know, but coming up with your own business model is hard work. Over and over we have seen a business model is quite meaningless unless you match it with the skills necessary to execute the business model in the right way.
You really can’t consider this to be a company failure. It represents entrepreneurs and their supporters who rushed into the market when all they had were fragments of a company.
A successful business begins with a deep understanding of what you do better than anyone else and what you want the company to do in the big picture. Don’t say, you are in business to make money. You must decide what you are going to do with that money. How will you make life better?
Your answer might be something like to pass on a more sustainable world for the next generation, or something more specific like addressing a major problem. Before you embark on this dangerous journey, figure out where you want to go. The market need you want to fulfill is a shorthand for why your company should exist on this planet.
Before we go any further, let’s note this first lesson:
You cannot innovate using anyone else’s DNA. You must know who you are as a company before you can know what you can do for the market and the world beyond it. Even if you don’t know who you are, your company antibodies do. They will protect their own identity, even if it kills the business. What that means is that you won’t be able to succeed if you don’t have the capabilities you need to reach your goals.