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The Dangers of Success – How to Avoid the Success Trap

by on June 9, 2015

Success TrapSo you’ve just raised capital in a VC round, maybe Series A or B, and you’re feeling pretty good!

The valuation was nice, the investors will add good value to the team, and you don’t have to worry about paying your bills at the moment.  In fact, you can invest in sales & marketing so you can really fuel your growth.

Nothing to worry about, right?

You already know the answer to that question.  In fact, it never leaves your mind.  There is always something to worry about.

One of them, at this moment, is the “Success Trap”.

Let’s examine how you got here.

First you’re excited that you’ve launched your company.  You land your first customers and then you’re feeling frenetic.  “My gosh, now we have to make sure they’re satisfied.”

Soon afterward, in hindsight, you’ve reached the limits of what you can do with what you have.  You need invest in the business some more.  That often means outside funding and in Silicon Valley it means VC funding.

Now you’re feeling anxious.  How much do I raise at what valuation and under what terms?  Who do I bring in as an investor?

All of these questions and more have been answered.  Now you have the money.  Now you can relax.

Now comes payback.  You’re reaping the rewards of all your hard work to date.  You’ve invested in the business and increased capacity to handle 2x-5x revenue growth.

Beware.  This is the Success Trap because that feeling doesn’t last.  The success trap is the attempt to continue to do what worked in the past instead of evolving.  The revenue growth lags the investment.  It takes months or years for revenue to meet capacity.  This results in frustration for the management team and eventually a great deal of stress and disillusionment.

This results in research about how to fix the situation, which often leads to a restructure and personnel changes.

Gap

Inc. magazine did a piece on this.  You can read it here.  One of the things it stated is, “Developing sustainable success means being the best executor of your current formula for success while also assuming the willingness to cannibalize it in order to stay relevant and exciting. It’s being the builder and the destroyer at the same time. It sounds contradictory, but it’s not.”

There are 5 Points to avoid the Success Trap:

1. Ask the right questions. Ask your customers what they DON’T like about your product, not what they do like.  Find out what is missing, how it can be improved.

2. Cannibalize. Don’t stand still.  Look for ways to grow, to do better.  Plan the next phase of growth.

3. Experiment when the market is small.  Don’t wait for the evolving opportunity to be big enough to justify your time and attention.  Dare to change when your new opportunities are still small.

4. Dedicate resources to innovation.  Your tolerance for failure drops to zero when you’re successful because you have higher expectations, and so do your investors.  Dedicate a team to the next big thing knowing they may fail.  But the effort will create opportunities.

5. Celebrate Failure.  It’s easy to celebrate success.  Failure is looked down upon.  Change that. Give people a license to experiment and fail. Allow them the freedom to try something new and reach new discoveries.

Your success should be celebrated.  Congratulations on your successful fund raising!  Now that you know what lies ahead, what issues you will face, and what to do to avoid the Success Traps, you’re well on your way to building a great company.

What it ultimately comes down to is you need to develop new skills, but that’s for another post……

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.  

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From → Strategy, Valuation

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