Death by a Thousand Cuts (and How To Avoid It)

You've probably heard the phrase that "90% of startups end up failing in the first 3-5 years". Or, at least, some variation of this adage.

I cringe every time I hear it because even if that proportion is overblown (Harvard Business Review estimated the failure rate at 70% within the first five years, I believe), there is some truth to it. Not everybody that tries to build a business manages to do so successfully in the long run.

Building a business from scratch is hard because implies creating something out of nothing. It implies *correcting* how the world works.

Think of it this way: before your company existed, the world didn't work as well as you thought it would, but *after your company* exists, it works better. In some miraculous way, an entrepreneur is not only a problem-solver but also a world-changer. 

Entrepreneurship is a complex discipline (“masters of business” peak much later in life than masters in other disciplines), as it demands the assembly of several different pieces together (product, marketing, sales, operations, etc…) with an ever-increasing degree of complexity. 

The prototypical path for a newly-minted business goes something like this:

First, you uncover a need in the market and create a product or service that addresses it.

Later, once you have market-fit (or before), you start marketing and selling the product/service. 

Then, when money starts coming in and you can scale up, operational and financial management start becoming more important. Etc.

Each step builds on top of the previous one to create a complex machine that solves a painful problem (that is useful) and delivers *real* value to your clients at scale. 

The problem? Each step of the way adds complexity, especially as you scale (servicing your neighbor is simpler than servicing a client located in New Zealand).

The problem with the ever-increasing level of complexity is that it becomes easy to be swayed away from your core business... and start devoting time to stuff that doesn't matter.

It is easy to fall for shallow marketing practices, like being on 5 social networks at a time.

It is easy to fall for the trap of creating adjacent products that address your clients' non-core needs, which eat up resources but add little to the bottom line.

It is easy to convince yourself that these new low-ROI products “demand” new HR efforts. 

Then your new hires start working on stuff that is increasingly deviated from your core business.

Etc. Complexity breeds complexity.

My point is that when building a business, it is easy to lose sight of your core program and stretch yourself too thin, giving way to an increasing degree of complexity.

Each small decision carries its own footprint, no matter how small it may be. And complexity, thus, increases.

This is the reason why most startups fail: they increase their complexity way above their management threshold. The mismanagement of an ever-increasing degree of complexity ends up becoming fatal.

You can still operate, don’t get me wrong, especially if you are well-funded. In today's crazy world, the survival of a startup seems to depend more on the entrepreneur's ability to lure in additional investors (hello WeWork) than, you know, making the unit economic work and actually make a profit.

Let me give you a personal, real-life example of how the mismanagement of complexity wrecked a business I had the opportunity to partake in:

I learned this lesson the hard way when I was doing business development in Shanghai. If you have ever tried to do business with China, you know how complex it is. (First layer of complexity, already very hard).

Not only did we have to adapt to local business customs but do so while learning how to properly communicate in English when we were all Spanish nationals communicating with Chinese nationals (another layer of complexity).

Additionally, the company was an architecture bureau that dealt with urban planning regulations, which are complex in all places of the world (third layer of complexity).

Etc.

A hard-to-manage degree of complexity, all around, at all times: a recipe for disaster.

After a few months of hard work and back-and-forth negotiating, we managed to secure a huge contract to renovate a big urban area in a bustling city in China's interior. We were enthralled: our hard work had paid off.

Once the contract's upfront payment hit our Chinese bank account, though, our Chinese partner embezzled the money. It took us a few days to discover this, when it was already too late. Since China is a country where the Rule of Law doesn't apply (only the iron fist of the Communist Party, ask Jack Ma), we never recovered the money. Nor did we surmount the blow. 

The moral of the story? Severe mismanagement of higher-than-expected complexity levels had prevented us from being agile enough to react to the circumstances.

This story proves my point of the inherent complexity of business-building. It also leads to the inevitable conclusion: when you control a small number of things that you know well, you may become proficient at it. When you stretch yourself too thin or take on tasks that are too hard or difficult for your current skill level, you end up paying a high price.

This is what I call "Death by a Thousand Cuts": you don't fail because you make big mistakes, but because you don't do well enough the things that matter.

The corollary to this is obvious: only those obsessed with doing less (or nothing) of what doesn't matter at all have a chance of being excellent at what matters.

Those that understand this concept of "Death by a Thousand Cuts" and become proficient at one core thing before scaling up, have a much bigger chance of success than 10%. My experience is 70% (if they persist long enough).

This lesson also applies to self-management and peak performance: the biggest ROI in an entrepreneurs work-life is found in elimination, not addition. Instead of adding/trying new things (new training, new protocols, new connections, etc), the best way of increasing performance is to ruthlessly cut back on things that have a low or negative return on time invested. 

The highest leverage is found in doing less of everything (but more of what moves the needle exponentially faster).

Internalize this concept, and start looking for ways to do less with more. 

The best way to do this is to systematically audit every process in your business, and match it with its corresponding outcome:

1. What processes take long, but yield little? Cut those out.
2. What processes have asymmetrically positive returns on time & attention invested? Double-down on those.
3. Which areas of the company have an obviously bad challenge/skill ratio (like having non-bilingual Spanish architects discuss urban planning regulations with non-bilingual Chinese regulators)? Rethink those processes.

Run this feedback loop as fast and as often, and your business (and your brain) will thank you. And your cognitive performance will improve substantially.

Hope this helps. 

Let me know your thoughts.