“Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty.” - Nassim Taleb
Everyone is talking about Nassim Taleb’s book ‘Anti-Fragile’ which broadly describes how antifragility affects business, politics, medicine, and life in general. Taleb views startups as fragile because of their inherent volatility and describes the ability of startups to thrive and grow despite this volatility as “anti-fragility”.
When fragile startups die, there are inevitable post-mortems, which help you see a pattern of common startup mistakes. Here are three prevalent mistakes that can cost startups their precious runway capital:
1. Making heavy investments and investment commitments
The transition between runway capital and the breakeven point can mean life or death for startups. Managing costs is often like herding cats because you have to deliver resources on time with the minimal investment and excessive risk. What’s more, you also have to show revenue growth, high margins, and traction.
While there is no easy cure for this problem, you can surely abate symptoms by avoiding heavy investments, whether you are investing in IT, infrastructure, resources, or inventory. Even human resources are investment commitments that can create cash flow issues.
Sure you need great coders, computers, and coffee machines, but avoid investing in things that don’t actually increase the value of your business.
For instance, hire contract manufacturers who provide a 3-month credit period (at a premium) rather than manufacturers who give you a discount but at a shorter credit period.
Pay senior employees with equity rather than cash. Also stay small. Have a strong but small team.
Learn how to barter. In our early days, we provided marketing services to a number of SaaS companies in exchange for their services and tools. We are happy to do it even now because it helps us save a lot of capital.
2. Pushing back deadlines
There can be a hundred and one reasons why you need to push back deadlines. However, if you don’t enforce a strict deadline policy, you will never meet your goals.
Programmers often quote the ninety-ninety rule which is a funny aphorism that applies to almost all business verticals. The rule goes something like this:
The first 90 percent of the code accounts for the first 90 percent of the development time. The remaining 10 percent of the code accounts for the other 90 percent of the development time.
Without the proverbial looming sword of the deadline, your productivity chart would resemble Figure A or worse, Figure B.
Let me share a real-world example. In 2013, Fisker Automotive folded despite raising $1.4 billion capital since its founding in 2007. An analysis of the company's rise and fall revealed that the company couldn’t manage deadlines right from their early design days until production. Some of the production delays were caused by last-minute design changes and engineering fixes (not that it prevented engineering blunders). These delays resulted in additional cost overruns. Fisker also over-hoarded many parts, which is a classic inventory management mistake.
Sadly, Fisker is not the only company that let sliding deadlines become a costly, fatal mistake. Many startups fall prey to this mistake as they experience startup burnout and become more lethargic in their approach. You can avoid the fate of Fisker by doing the following:
Set an inflexible deadline for goals. If you make it a habit of pushing deadlines, you will never have a finished product on hand or it would be too late.
Employees often let deadlines pass because of the lack of fear or consequences. According to Steve Levinson, Ph.D, clinical psychologist and the co-author of The Power to Get Things Done, “The key to breaking a late habit is to take deliberate, specific, and creative action” to ensure deadlines are met.
3. Ignoring Hofstadter's law
Hofstadter's law was coined by Douglas Hofstadter, professor and the author of Pulitzer-prize winning book, Gödel, Escher, Bach: An Eternal Golden Braid. According to the law, it always takes longer than you expect, even when you take Hofstadter's Law into account. The law has been cited in books like The Mythical Man-Month and suggests that we often underestimate the complexity of projects and end up missing deadlines as a result.
A sensible way to ensure you don’t fall behind schedule is to put a project management system in place. It allows you to break down projects in small tasks and subtasks and estimate how long each task will take. However, there are inevitable, unforeseen circumstances that cause delays and end up affecting other dependent tasks. Plan ahead:
Always keep Hofstadter law in mind when you plan projects to avoid missing deadlines. There are several affordable project management tools in the market (such as Trello) that can help you plan effectively.
Don’t penny pinch on tools that are essential for the sustainability of your startup.
No matter how finely detailed your planning is, you can’t possibly work out task dependencies manually each time something goes wrong. There are several project management tools, ranging from sophisticated ones like Microsoft Project to comprehensive ones like WorkZone.
Final words
We all know how bad it becomes when you overpromise and underdeliver. Apart from the loss of clients and divestments, you also risk tarnishing your reputation. Other than Hodfaster’s law, also remember Murphy’s Law - anything that can go wrong, will go wrong. This is especially true for startups and this is where the resilience and antifragility of startups get tested. If you want to build an anti-fragile startup, make sure you don’t commit these three classic startup mistakes and you will be successful despite Murphy’s and Hodfaster’s laws.