The Devil is in the Dependencies: Part 1, Startups
You are no doubt familiar with the idiom, “The devil is in the details.” It’s a well-known truism that almost nothing is as simple as it seems. This is especially true in business. Starting, buying, building and ultimately selling a business is almost always more complex than it seems when looking in from the outside. This is ode to another well-know saying, “If it was easy, everyone would do it.”
The details are all-important. Most experts agree that starting and building a successful business to exit is usually the result of doing a lot of little things right, not the result of one big thing going right, unless that one big thing is luck and timing. Sometimes, nothing beats being in the right place at the right time – in spite of yourself – and recognizing it (which is itself an important dependency). But I digress.
The details are important, but not as critical as the dependencies. The devil is in the dependencies.
Details notwithstanding, one of the most important and overlooked aspects of starting, buying, building and selling a business, is identifying and knocking down the critical dependencies.
Many aspiring and seasoned entrepreneurs alike fail to understand the critical role dependencies play until it is too late. The purpose of this piece is to help founders, business buyers and sellers, recognize, prioritize, and knockdown the critical dependencies which stand in the way of their venture’s success. The dependencies, like the stakes, get bigger at each stage of the business’s life cycle.
In Part 1 of this series, we will look at some of the critical dependencies faced by startups. In Part 2, we will look at some of the critical dependencies faced by business buyers. In Part 3, we will look at some of the critical dependencies faced by businesses that are operating and trying to scale. In Part 4, we will look at some of the critical dependencies faced by business sellers in preparing the company for exit and negotiating a successful transaction.
So, what exactly is a critical business dependency?
A critical business dependency is one that threatens the business’s viability, valuation, or growth potential, and whose resolution is often out of the immediate control of the owners.
A business’s dependencies vary based upon the company’s stage. They are always changing. How well they are identified, managed and resolved determine the company’s viability, valuation, growth and exit potential. Let’s examine some of the critical dependencies faced by many startups.
Startup Business Critical Dependencies
One of the reasons startups are hard is because they have so MANY dependencies. All are important, and many are critical to their viability. It’s why so many startups fail. The founders are unable to knockdown the dependencies fast enough to advance the business before the opportunity is seized by others who don’t have the same (or as many) dependencies. Many of the dependencies are beyond the immediate control of the founders. The founders are almost solely dependent on the goodwill, resources, and time frames of others. Namely, prospective customers, contractors and investors.
Ask any startup founder what the critical dependencies are to successfully launch his or her venture and reach profitability, and s/he will likely stare at you like a deer in headlights. Almost EVERYTHING is a dependency. It’s overwhelming and infuriating, which is why you need to be a little crazy or desperate to start a company. It’s impossible to know what you don’t know until you experience it. This is why experienced mentors and investors are critical to a startup’s success — they understand what matters at each stage, the dependencies.
In the most recent cohort I mentor at StartupNOW, these are some of the critical dependencies faced by some of the founders:
1. A warehouse is needed to produce the MVP and is being donated by the landlord for the pilot, but the founder is having difficulty pinning the landlord down to an agreement and move-in date. The launch date and raise continue to slide as a result.
2. Industrial equipment is needed to produce the MVP, but the founder is dependent upon a successful crowdfunding campaign to raise the money to buy the equipment, or get it donated. So far, few people have donated.
3. A technical co-founder and outsource development team is needed to produce the MVP, but the founder is dependent on writing a comprehensive product specification and recruiting the co-founder – with no previous experience in doing either.
In each of these cases, the founders have little knowledge and experience with these type issues and are dependent on the goodwill and time frames of others to knock them down. In addition, they are being distracted with dozens of other tasks others are telling them they “must do”, in addition to maintaining their “real jobs” and generating income to live.
What’s more, in each of these cases, the founder’s have jumped through every hoop, each one progressively higher and smaller, over a six-month period. They survived the pruning gauntlet. They proved product-market fit. They wrote a solid business plan. They incorporated, built a web site and launched social media campaigns. They created pitch decks and presented their ventures to a panel of sophisticated investors.
Now, here they stand, on the precipice of failure. Their critical dependencies threaten to sink all their work, hopes and dreams. And those dependencies are largely out of their control and subject to the whims of others. So, what can they do about it?
Yup, startups are hard.
Key Milestones vs. Critical Dependencies
In my experience, every startup has FIVE key milestones to advance to the growth stage. Each of these milestones is wrought with a series of critical dependencies which must be knocked down to achieve. Milestones are what need to get done. Dependencies are the road blocks that must be overcome to reach the milestones. The five key milestones are:
a. A functioning product or service – Minimum Viable Product (MVP).
b. Customer traction, month-over-month adoption and growth of the MVP.
c. A good team (including advisors), preferably with a track record in the space.
d. A sales/distribution channel to propel the product into the market.
e. Operating capital. Debt or equity.
Smart founders are relentlessly focused on knocking down the dependencies that stand in the way of achieving these milestones.
Strategies and Tips for Knocking Down Dependencies
Here are some strategies and tips for startups facing do-or-die dependencies:
1. Good execution means focusing on the things that truly matter and ignoring or pushing off the things that don’t. The first strategy is to know the difference. Ask yourself every day, “What is the most important and most immediate thing I need to resolve to advance my venture?” Most startups die from distractions. Focus like a laser-beam on the critical dependencies.
2. Confirm with your team and advisors the most important and immediate dependency. Invite them to disagree and debate the gating issue. In my experience working with startups over 30+ years, many are focusing on the wrong things. Don’t debate a long list, agree on THE one or two dependencies. You must resolve A to get to B, and so forth down the line. If X doesn’t happen, we can’t get to Y.
3. Identify precisely WHO or WHAT is required to knockdown the dependency. Communicate the critical nature and timeline to the WHO or frame the steps and deadline for the WHAT. If the WHO wants to hold you hostage, move on, that’s a no-win situation. Most well-intentioned people want you to succeed and don’t want to be the bottle-neck. A landlord, partner, contractor, advisor or investor who enjoys standing between you and your milestones is the WRONG choice, and for some unearthly reason, too many entrepreneurs believe they have no choice but to continue the relationship.
4. Formulate a Plan B. If WHO is unable or unwilling to deliver by the deadline, identify another WHO. Wishful thinking is not a strategy. The only way to rein in dependencies that are largely beyond your control, is to have viable options and then not hesitate to forgo option A in favor of option B.
5. Do not take No for an answer. Do not wait for them to get back to you on their timeframe. Control the timeline. Never, ever, give up. Resolve the BIG, most important and most immediate critical dependency, then go to work right away on identifying and resolving the next critical dependency. Just keep knocking them down. Keep moving forward. Let nothing stand in the way between you and your key milestones.
In summary, achieving key Milestones is the path to success for every startup, and knocking down the critical dependencies that stand in the way of achieving those milestones, is what keeps you on the right path. The devil is in the dependencies. Vanquish those dependencies to breakthrough whatever is trying to stop your startup.
In Part 2 of this series, we will cover the critical dependencies encountered by people who want to BUY a business rather than start one from scratch. Stay tuned…