We at Legion have been part of building businesses for many years. And, every step of the way we have had to navigate the reality that most businesses will fail (the often quoted statistic is that 90% of businesses fail). And, while we think and hope that our approach might help our odds of success, like just about every startup, we wake up every day with the reality that we may or may not find the right combination of market timing, opportunity, execution and some luck.
We have also, independently from Legion, been mentors and small investors in early stage companies. And, those roles have often forced us to try to condense down a ton of complexity into simple recommendations. If that isn’t hard enough, the added piece is that what works for one company may not work for another. And, what worked for one company before may stop working because of market shifts, shifts in user behavior, or changes in marketing/sales platforms and processes. So, like any good advisor, mentor or advisor, we recognize that sometimes our advice has been sometimes good and sometimes been bad. Sometimes our recommendations have led to amazing results, high impact positive changes, and that little bit of extra knowledge to help a company get to the next point of their journey. But, sometimes, those recommendations have been well-intentioned but either wrong, mistimed or not that useful.
You see, the thing about start-ups is they are incredibly difficult because all start-ups must do something new that the market wants and be able to do that before time and money run out. Like all early stage investors whether they be angels or VC investors, we have made and lost money (sometimes all; sometimes part) investing in start-ups. That’s the reality of investing in early stage companies.
And, here’s what we have seen from all of these experiences — often times, what separates companies that succeed from those that don’t, is a very thin line. We have seen companies with amazingly talented teams and great products fail while companies with average teams and less than great products win. We have seen teams that work around the clock and pour all of their blood, sweat, tears and heart into a business both succeed and fail. And, we have seen teams that seem to barely give effort also succeed and fail. We have also seen companies that the market thought had “dumb” ideas not really have much of a different result than those that the market thought had “brilliant” ideas.
Start-ups are hard.
Start-ups are messy.
Start-ups are humbling.
Start-ups are energizing.
And, exciting.
And, fun.
And, miserable.
And, that’s why they are addicting. It’s why people love to create, join and invest in start-ups and also why they often make no rational sense to start or be a part of.
For example, as a startup community we will often say that a company that wins does so because they have been able to combine great execution with great market timing. And, companies that lose either do so because of a market problem (timing or too hard to reach) or an execution problem (the team does poorly or gets unfocused). And, this is partially true but it’s also partially false. Why? Because the reality is a lot more complex than that.
So, if all start-up advice is both good and bad. And, nobody really knows if a company is going to succeed or fail (remember that even the smartest and best venture capital investors invest in 10 companies because they know that 7 or 8 will fail but hope that one or two will hit a double and one will hit a homerun to make up for the losses and then some). Then, why do some start-ups succeed and some fail?
Well, sorry for the really basic and obvious answer but here it is — those that succeed are able to get “top of funnel” (potential customers) at a cost that allows them to make a profit. Those that don’t aren’t able to get “top of funnel” at a cost that allows them to make a profit. Sure, there are exceptions to this. Companies can raise enough money to absorb the losses from building top of funnel. (here’s looking at you food delivery companies, ride hailing apps, etc…). But, let’s put those exceptions aside. Because most start-ups will not raise Billions of dollars. Most will have to bootstrap or do a lot with a little. And, a “little” is more and more every day.
So, in the simplest form, for a start-up to succeed, the one thing they need to be able to do is be able to acquire customers for less than they make from that customer. And, then even when they can do that, they need to do that at a scale that allows them to pay the other bills required to run and grow a business.
We work in tech but let’s look at a simple example for those that aren’t in tech.
You want to start up a restaurant — an industry that is notoriously hard to succeed in (on average, 60% of restaurants fail in the first year and 80% fail within five years).
You are an amazing chef that has won a ton of awards.
You have a bit of money but you bring on some investors to help fund your opening.
You don’t have the money to open a restaurant in a location where there is endless foot traffic. So, you open your restaurant where the rent is cheaper.
And, now you have to figure out how to get the word out and earn enough customers every week, month and year to pay for your costs. If you do an amazing job, you will get some great press and maybe do well on social. But, those are shortlived. So, you then need to figure out how attract customers affordably to succeed. If you do, you can maybe be successful. If you can’t, you won’t. Your food may be amazing. You may the best chef in the city. But, if you can’t get enough customers (enough = how much you make per customer x the number of customers needed to attract to pay your rent, wages, utilities, and some profit to make it worth continuing) in the “top of funnel”, it won’t matter.
And, this is the case for anybody that starts any kind of business. Those that succeed, are able to find top of funnel at a price that is less than how much they make for each customer. Those that don’t, don’t find enough top of funnel at a price that is less than they make from their customers plus the additional costs to keep the business running and growing.
Now, there are a lot of reasons why some companies are able to find top of funnel and why some aren’t. So, again, while any advice about how to succeed as a start-up should involve that you need to be able to get enough top of funnel at a price that allows you to make money on each customer and attract enough customers to pay your other bills…that’s an over-simplifcation.
So, every start-up on earth keeps searching for top of funnel day in and day out. Some will find it. Some won’t. Some will find it and then lose it. Some will find it but not be able to scale it. And, the continuous search keeps going.
Note About Forward-Looking Statements
As Legion Is A Regulation A+ Entity, It Is Important That We Point Out That The Above May Contain Forward-Looking Statements And Information Relating To, Among Other Things, Legion Works, Inc., Its Business Plan And Strategy, And Its Industry. These Forward-Looking Statements Are Based On The Beliefs Of, Assumptions Made By, And Information Currently Available To The Company’s Management. When Used, The Words “Estimate,” “Project,” “Believe,” “Anticipate,” “Intend,” “Expect” And Similar Expressions Are Intended To Identify Forward-Looking Statements, Which Constitute Forward-Looking Statements. These Statements Reflect Management’s Current Views With Respect To Future Events And Are Subject To Risks And Uncertainties That Could Cause Legion Works, Inc.’s Actual Results To Differ Materially From Those Contained In The Forward-Looking Statements. Investors Are Cautioned Not To Place Undue Reliance On These Forward-Looking Statements, Which Speak Only As Of The Date On Which They Are Made. Legion Works, Inc. Does Not Undertake Any Obligation To Revise Or Update These Forward-Looking Statements To Reflect Events Or Circumstances After Such Date Or To Reflect The Occurrence Of Unanticipated Events.
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