Three out of four startups fail. While you can't insulate yourself from market forces, having industry mentors and updated proxies will help you avoid some dangers along the road to success.
In our industry, we're fortunate to have plenty of successful entrepreneurs, including some with serial successes, who give willingly of their time, advice, connections, and often angel investments to a promising technology startup. That's why entrepreneurs should always network with these individuals or other seasoned executives as they grapple with various aspects of the startup business.
That advice comes from personal experience. As soon as I was named CEO of a startup electronic design automation (EDA) software company, I set out to put together a cadre of successful executive-level managers to serve as mentors. I selected well. One came from a well-known verification company that was sold to one of the Big Three EDA companies. He became much more than an adviser. He helped me navigate the potholes and recruit a stellar sales team, and he supported our efforts every step of the way. He was at once cheerleader and trusted guide.
Another approach that works well and I strongly recommend is having a proxy when starting a company. For those unfamiliar with the term (part of the MBA school vernacular), a proxy is an example or a template of what works. Think of it as a best-practices cookbook.
The proxy model works, and founders should not be afraid to borrow from proxies. They could range from business models -- with customers to target, contacts within those companies, and deal sizes -- to setting goals and expectations for business growth. The CEO of a verification startup told me that he used my startup as a proxy, which made me extraordinarily proud of the team.
A key limitation of the proxy model is that what worked for a similarly sized company in the same or a similar market won't work several years or tool generations later. Therefore, it is critical to go beyond the strategic choices made by the adopted proxy and understand the motivations for those choices. This requires engaging directly with those who were involved in the decisions as mentors or board members (as suggested above) or employees.
I found the proxy could be a source to hire people who enjoyed the success of the first startup and might want another bite at the apple. These people bring with them an intimate understanding of the path to success and the challenges that need to be overcome -- key assets that new entrepreneurs should leverage.
One of the key changes for startups in the semiconductor ecosystem over the last few years has been the lack of venture funding. Of course, this has a significant impact on the choice of a proxy, because it is hard to apply the going-to-market strategy of a well-funded company when operating on a shoestring. Conserving cash and carefully considering each line-item program is important in today's environment.
Let's look at a wildly successful startup where I had a front row seat. I believe it adopted the right strategy for companies operating on a shoestring. First and foremost, the company hit all the essentials: who, what, and when. The founders cast a team of all-star players who worked well together. The technology solved a critical problem in a highly time-sensitive market, and customer support was a high priority.
The on-target strategic choice was the founders' decision to keep the company in stealth mode much later than most entrepreneurs would have waited. Instead, they focused on making early adopters successful and developing a commercially viable tool. Once those two boxes were checked, we implemented a widespread marketing program. This means the company saved its cash reserves for a well-coordinated launch that benefited from multiple customer endorsements. Yes, the company was subsequently acquired by one of the Big Three EDA companies.
Let's turn our attention to failures, a much harder and more painful topic, especially for those of us who have lived through the decline of companies in which we strongly believed. The reality is that three out of four startups fail. Reasons are varied, and it would be impossible to enumerate them here. The key is that the young company needs to operate on all cylinders. A weakness in any area can be lethal to the company, making it imperative for a startup CEO to act quickly and decisively when performance is lagging in one department.
All told, there's nothing better than having access to successful entrepreneurs who have been there and done that, as is finding the proxy that works best for the particular startup's situation.
—Michel Courtoy is a former design engineer and EDA executive who sits on the board of directors at Breker Verification Systems.