Has Your Startup Hit A Dead End?

This following column was provided by Mark Davis. Mark is the author of Get Venture, a column designed to help entrepreneurs raise venture capital. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in NYC.

It is often said that the best entrepreneurs evolve, meaning that they successfully redefine their business models to match their changing understanding of their opportunities. For many, this means focusing on a new customer base, leveraging a new channel, repositioning a brand, restructuring pricing or making changes to the team.

The bigger plan, however, is sometimes destined not to succeed regardless of how much tweaking the entrepreneur does. Fundamental flaws in a business model can loom out of sight, only to be unearthed when a company first tests the waters by making its service available to customers. For example, in some cases, it might turn out that customers value something very different than what a company is offering. The entrepreneur’s intuition may have been off. Even worse, this situation can arise after an entrepreneur does the proper diligence. While an entrepreneur may have conducted surveys that demonstrated resounding customer interest in his service, customers may still not be motivated enough to act when it comes time to sign-up or pay. Yes, customers often can’t predict their own behavior.

Regardless of why an entrepreneur hits a dead-end, it is important for him to take a step back and look at the bigger picture. Doing so is a much more difficult proposition that one might expect, as the conventional wisdom told to entrepreneurs is that they must be perpetual contrarians; they must champion their ideas even when everyone around them, fellow entrepreneurs, investors, friends and even family, says that they’re crazy.

Well, the conventional wisdom isn’t that practical. Entrepreneurs do need to assume that most people won’t “get it”. Some, not all, of the other folks with relevant domain knowledge, however, should see the vision. If every knowledgeable colleague they know says that it’s a terrible idea, it probably is.

Another indicator of a fundamental business flaw comes in the form of an issue that the entrepreneur already knows about but has elected to ignore. It’s the question they admit to always getting stuck on, but have still somehow decided won’t hamper their progress. “Yeah that is a problem, but we’ll just work through that.” If you find yourself unable to answer a key question about your business it may be your Achilles Heel. It’s an optimist’s natural tendency to ignore underlying issues. If you find yourself unable to answer a key question, it’s time to take a step back and re-evaluate. Clear your head and reassess the practicality of your venture.

While other people’s opinions can be a helpful leading indicator, at the end of the day an entrepreneur needs to be the one to decide that his business plan is flawed. If the plan is in fact flawed, the sooner that he figures that out, the better.