In Why Start-Ups Fail I talk about six main causes of why start-ups fail. The new argument I make is that five of those, I believe, are avoidable in many cases.

If you look at a lot of the literature about venture capital and startups, it implies that in order to have the big winners, you have to back a lot of different companies, and it's inevitable that 90 percent of them will fail over five years. I don't believe that to be true. That's based on my experience over twenty years of working in this area. I think if we learn from what we've seen and what's gone on before, we can avoid some of those failures.

That doesn't mean — and I say this clearly — that you're going to get hundreds more Googles and Amazons and enormous winners. But you will get many companies that return two, three, four times the investment. And because they haven't died for reasons that were avoidable, some of those will become big, established companies.

The growth of a company is always progressive. Amazon was once two months away from bankruptcy. There are always stumbles. The market has to be educated. Facebook started out as a product for undergraduates at Harvard to connect with each other. It expanded to other universities. It took time to see what the market was, who would be interested in this, and so on. Amazon started out as a bookstore, as we know, before it became the everything store. It takes time, and it always happens in stages. It's a matter of getting through these stages rather than falling at one of the hurdles.

What often happens with a new technology is that someone starts something, and then lots of other people get into it. Whether it's a hard product, like disk drives or various recording media, or a software product like search engines, it's rare that you have something completely unique that stays unique.

What happens is you get a proliferation of companies in an area where there's demand, where people really want the product. And then, to quote one of my old friends and colleagues who sadly died a year ago, Jim Utterback from MIT — what he used to say is that eventually a dominant design emerges. You may start with one or two companies, then you've got twenty on that same product. Then somehow people say, "this is the best," and this dominant design emerges, and you collapse to one or two competitors. I think that's the model that is much more common than having one innovation which is completely unique. Yahoo was there before Google in search. There were other search engines that preceded Yahoo that we don't even remember anymore.

Failure is also very common. There are people who believe that your mantra should be fail, fail again, fail better, and that's the way you learn. But people are putting in superhuman efforts for years. All I am trying to say is: don't fail for reasons which you could avoid.

For example, you've got a PhD in physics. Out of that PhD you saw some device idea that you think could be important. Maybe you've made something in the lab, and you want to start a business. You get together with a friend, or maybe the professor you were working with, and you start this company. Fine. But do you know anything about business? No. You're a physicist, so you think, "Physics is very difficult, but business is simple. If I make a hundred dollars and I spend ninety, I'm profitable. If I make a hundred and I spend a hundred and ten, it doesn't work. That's all I have to know."

It turns out it's a little more complicated than that. You can learn these things, but you have to be sufficiently self-aware to know that there are things you don't know — things you need to know in order to run a business. That's what I mean by an avoidable thing. It's a very basic thing, but it occurs over and over again.

People think, "I'm getting sales now, so of course we're going to be successful. We have an order for hundreds of devices. It's no problem." In fact, it is a problem, because you need something called working capital. Where are you going to get the money to buy the next things? I've known a lot of physics and chemistry and biology PhD programs, and I don't think any of them ever teach their students about working capital. It's something you need to learn.

How do you build a team? How do you get the team to be high-performing, to align, to work together? How do you get sensitive to the external environment, know what competitors are doing, understand the structure of the business? Those are things that have to be developed. Skills are more straightforward — if you're self-aware, you can acquire them. Competencies take more coaching. But they're both important.

In business, a competency is to be able to conceptualize strategy. Strategic conceptualizer. You look at the business and think about it in strategic terms rather than just in, what do I have to do today and tomorrow? In this book, I talk about some of the approaches that a startup might take to strategize.

Then, if you have this concept, can you influence other people? Strategic influencer. Can you persuade other people on your team, people you want money from, that you have something that’s worth following?

Another one, I want to mention is being sensitive to what’s going on around you. We can put that as environmentally astute. Do you see the trends in the environment that’s around you? Do you see what’s coming up on the outside that could either help or kill your business? And that’s important in everyday life as well.

At the center of everything is building best teams, because that’s what successful people do. They really build a team, and they bring different things together, and they make it a team, not just a collection of people. And of course, ensuring alignment. That is, getting people to move in the same direction, even though they each have different things to do, they’re aligned with the vision of where we’re trying to go. That’s a bit about what competencies are, and I think you can see that they’re different from skills.

Most startups, when they get past the lab stage and they've got some investment, they have a board. The members of the board represent the investors. There may be some independent experts that people have brought on. Those board members, and particularly the chairman, can say, "From my experience, I know you're missing this competency. I'm going to get you a coach, or I'm going to be your coach." There are places you can get help — if the board is really doing their job, not just turning up once a quarter and yelling at you for not making more sales.

It is possible to have one founder in charge. But it's pretty rare that one person builds a real business. It's not bad to have one person in charge, as long as that person knows what kind of help they need and where they're going to get it from.

As soon as you have investors who have put in substantial amounts of money, they want some oversight, and the form for that is a board. I've served on fourteen boards, both big companies and small, and I still serve on three. Board members can play a very important role, but they can also be the cause of failure.

You sometimes have the situation where some investors want to make a quick profit and get out, while others want to stay for the long term and build slowly. If the board is not aligned — if they're not all pulling in the same direction, if they don't have the same goal — they can become a cause of failure rather than an implementer of success. A board that is truly working well is one of the startup's greatest assets, and the best founders know this. Which is why I say in the book that good startup founders should aspire to have a board that's better than they deserve.

Ongoing thread. More from Bernie Bulkin to follow.