Leadership

How Startups Can Pass “The Great Filter”

By marco ·  September 8, 2021

The concept of “The Great Filter” has given the world of science plenty to talk about. A mysterious type event that is difficult to foresee, approximate and quantify, which we must pass or else face extinction. It sounds exactly like the type of Sci-fi story that would turn heads and hold the attention of the curious for many generations to come.

Naturally, questions arise to this type of doomsday event, such as: how are we doing now? What events could be defined as our civilization’s “great filter”? Will we pass our great filter? And if we do pass it and civilization makes it to the next level, what preparations must we be making for that now?

Amusingly, the concept of the great filter can be applied almost 1:1 to the survival of startups. But instead of one potential “great filter”, there are hundreds, if not thousands. And the stakes are just as high: pass them or face extinction.

In this post, I will help you identify what these filters are, how to confront the undeniable entropy of running a startup, and how to turn this chaos ultimately into order, predictability and survival. So buckle up and enjoy the ride.

The Fermi Paradox

The Fermi Paradox proposes that if there must be a reason why life is not completely overflowing within the observable universe, it’s because of the universal filtration process. A giant filter of chaos, cynicism and destruction that wipes out any civilization that wasn’t ready or managed to pass it. The type of event that only a civilization with properly allocated resources, wisdom and technological advancement in our galaxial jungle could beat.

What sounds like a heartless plan concocted by an evil mastermind, is in fact simply the physical representation of the second law of thermodynamics: systems left on their own tend towards more chaos. And as this chaos propagates exponentially, uncertainties and probabilities for some grand scale irreversible event at some point in space-time become inevitable.

Simply said: consciousness is one of the few things that fight entropy and creates order. If we just leave things up to their own, if we don’t master outcomes: we’re bound to face ever-expanding chaos that will ultimately lead to our demise. Failure by omission if you will.

Here is the crux: these fundamental laws of physics don’t only count for some abstract idea of the universe that I’m trying to show you here.

The Anatomy of Startups

The playing field for startups is almost exactly the same. Here are the factors that come into play for our analogy:

  • The team
  • The market (universe)
  • The goal
  • The obstacles (filters)

The team is usually a group of entrepreneurs who confront the inevitable entropy of nature (the market) and try to turn that into useful order – in the form of goods and services. They then aim to survive while doing so.

The market is the representation of the universe. Billions of actors and influences, each with their own vector and intention that may rock your boat or spoil the party at any given moment.

The goal is the purpose of the order you seek to create and provides the team with direction. Without it, you’d drift around senselessly.

The obstacles are what makes it a game. The only constant in a game is uncertainty – otherwise it would cease to be a game (things get pretty boring if you’re always winning, right?). While you try to achieve your goal, you’re faced with thousands of obstacles (filters) that appear expectedly or unexpectedly in the form of revenue crises, hiring crises, product crises, legal battles, distribution problems, retention flaws, etc.

Indeed, if there is one constant for startups, it’s to continuously overcome obstacles in the pursuit of a goal with the overt motive of creating order and predictability.

Leveling Up

What is a game? You try to achieve a goal while overcoming obstacles along the way.

startup-game

Is there a more representative photo of the experience of running a startup than a Super Mario Bros obstacle course?

But let’s continue our train of thought – the only way to actually win the game is to fight for order. To make things somewhat predictable. To reduce exponential probabilities that create extinction events. And to make continuous iterations and advancements in the hope of assuming more control over our environment. To remove new and potentially big obstacles, and thus to successfully reach our goal and increase our ability to survive.

Some “Yoda” type quotes that might help you remember this principle:

“Control or be controlled.”

“Play or be played”

“Be active or reactive”

“Grow or decline”

…young padawan.

When we break this down into levels, then the first goal of any startup that has been given life in this wilderness is first and foremost: “Survive”.

But closely after that, it’s the continuous form of that verb: “surviving” with the aim of achieving a higher state or condition of being, which makes it more likely to survive.

Startup Survival Spectrum

Surviving always happens in the direction of a goal. But ultimately, it helps you attain a better and more sustainable state. If we have a scale ranging from the lowest form of survival to the highest form of survival for startups, it would look like this:

startup-survival-spectrum

Bear in mind that these conditions are fluid forms and any company may change upwards or downwards as companies either achieve a better state of existence or fail to keep on “surviving” in the right direction.

Below you see the rundown of the qualities that define each stage. This is no absolute list. The list may be changed to fit the context of your own company.

Level 0 – Non Existence

Characteristics: 

  • No product
  • No distribution
  • No measurement or no existing KPIs
  • No recognition
  • No awareness

Guidance: 

  • Find out what products/services are needed/wanted
  • Distribute and make it known relentlessly

Level 1 – Danger

Characteristics: 

  • Vertically declining KPIs
  • Constant & recurring problems
  • Understaffed for basic execution
  • To-dos and meetings not getting done
  • Feels like chaos with some hope
  • Usually low on cash

Guidance: 

  • Assess where the problems came from
  • Make a list and find definite solutions
  • Bypass the person who was previously in charge and remove any danger from the situation
  • Establish new habits and methods for the team that work
  • Create clear policies together with the team so the same problematic situations don’t happen again
  • Assign posts and make sure everybody knows their to-dos and are executing them without question

Level 2 – Volatility

Characteristics:

  • KPIs are stable or slightly moving down, but with great variation
  • Some problems occurring
  • May feel like a rollercoaster with ups and downs
  • Some companies that grow faster than they can handle or hire resources, so they’re full with emergencies
  • Companies with too few resources and irregular cash flow can be here
  • May have few resources available

Guidance: 

  • Handle the sources of volatility
  • Prepare the company for further expansion
  • Promote company, products and services relentlessly
  • Save money

Level 3 – Normal

Characteristics: 

  • KPIs are stable and steadily increasing
  • Things are working well
  • Somewhat reliable and predictable KPIs
  • The organization is running smoothly
  • Very few emergencies and when they happen: they are quickly handled
  • Enough resources and reserves available
  • Marketing / distribution channels work

Guidance:

  • Keep doing what worked and brought you into this position
  • Experiment and do more of what increases the curve
  • Repair/optimize in your existing processes

Level 4 – Affluence

Characteristics: 

  • Much more $$$ flowing in compared to what’s being spent
  • High predictability of main KPIs (revenue, profits, etc.)
  • Great team vibes and culture
  • Curve is growing fast upwards
  • Very few emergencies, and if they happen they are quickly handled

Guidance: 

  • Invest in product
  • Save money
  • Pay off all debts
  • Reward the factors that got you to this level

Level 5 – Ascendance

  • Becoming a category leader
  • Significant rewards
  • Lots of media attention
  • Everybody wants ‘in’

Guidance: 

  • Don’t change anything that got you here

Level 6 – Power

  • Extreme predictability
  • Category ownership
  • Extreme control over all potential actors that may influence business

Guidance: 

  • Don’t change or disconnect from successful activities, people, processes, etc.
  • Make sure all success methods are clearly written up for any new person to assume the role
  • Allow for innovation
  • Protect yourself
  • Control uncertainty

So ultimately, you cannot grow a company sustainably without also growing through your levels sustainably. (If you’re looking for a bit more insight on this from a marketing and distribution perspective, read another blog post on this topic here.)

You will hardly find a company that has billions in revenue that is on Level 0. And you’ll most definitely never find a company in Power that makes no revenue. Survival and order are inextricably intertwined with one another.

While startups will most definitely face ups and downs, the general trend over a long enough time-span probably looks something like this:

Image by Jack Butcher – Visualize Value

And while that graph is over time moving up and to the right, it’s most probably going through that same graph from level 0 to level 6.

Obstacles and Filters Pushing Down on Growth

A young startup has an extremely complicated relationship with obstacles and filters. You would not necessarily want revenue problems, hiring problems, product problems, distribution problems, etc. as they can signify oncoming extinction.

In fact, survival is undeniably tied to energy efficiency. If you continuously spend all your energy on weathering extreme events and fighting 50:50 battles, at some point in time, you’re going to be tired and ultimately lose a battle.

But on the other side of the coin, without obstacles and filters, how otherwise would you be able to change, innovate, iterate and achieve a better condition of survival? While obstacles and filters pose incredible danger if they are not handled timely or adequately – they can also be perceived as market feedback nudging you in the right direction.

Nearly dying faring one course probably teaches a startup a couple of things:

  1. Don’t fare that course again
  2. Correct all the sources that led you to that course
  3. Find new and better courses that enable smoother sailing

This continuous type of iteration can only be produced by experiencing, enduring and outlasting chaos. In fact, startups that survive do become antifragile in a way.

Here is a list of common threats that we have identified as obstacles or filters for your startup which push down against survival and must be figured out or else face great problems.

  1. No discovered or working repeatable distribution channels
  2. No product, iteration or optimization
  3. No team or poor team in place
  4. Poor sales execution
  5. No product/market/model/channel fit
  6. No market feedback
  7. Bad customer support
  8. Not enough runway
  9. Too high burn rate
  10. Too high customer churn
  11. No setup of processes or policies
  12. No clear goals or OKRs
  13. No solid contracts or legal cover
  14. Too high customer acquisition costs
  15. Dependence on third-party acquisition channels
  16. No clear equity agreements with co-founders
  17. Lack of funding / closing rounds
  18. Bad UX and poor NPS
  19. Founder burn out
  20. No investor harmony
  21.  No guaranteed uptime
  22. Loss of momentum (typically due to wrong decisions)
  23. Not prepared for competition
  24. Customers not paying (on-time)
  25. No tracking of customers and leads
  26. Bad implementation of CRM
  27. No proper web presence
  28. No internal key expertise (marketing, sales, management)
  29. No pilot extensions
  30. High team turnover

Examples of Handling Common Threats

Situation #1: No Repeatable Distribution Channels

There are many startups that have lifted off through hustling. They have contacted and exhausted their networks in order to get first deals in.

There is in fact a need for the service, but after a while, all these contacts have been contacted and there is little left in the pipeline. What happens next?

The company must actually find workable and sustainable distribution channels or else fail.

Actionable steps:

1. Identify there is a lack of distribution channels
2. Promote significantly
3. Meanwhile figure out what is repeatable/sustainable
4. Repeat until problem is solved

If this is not handled, it will be your company’s great filter.

Exercise: What level do you think this company is in? You can find the levels above.

Situation #2: No Clear Goals or OKRs

There are many top-tech startups (we have worked with many of them) that have an amazing product, great customers, lovely support and every ingredient you could think of for success.

But the bottleneck for them is actually management.

The pain of having no clear goals or OKRs outs itself by people working on conflicting goals. People not knowing how things are supposed to be done, so they create definitions for themselves.

People not having clear data-driven goals so every month is a kind of guess rather than a well-intentioned, executed plan.

Actionable steps:

1. Track all important data and KPIs
2. Make sure all past data is correct or useable
3. If you’re starting from scratch, make sure you have a system set up where you can measure this all
4. If you’re setting it up from scratch; make sure it’s set up correctly
5. Set clear goals for your team and each employee
6. Track those goals on a periodic basis
7. Create clear policies for the company and the team
8. Assign clear ownership
9. Have a clear QA process
10. Measure departmental progress

Situation #3: Founder Burnout

Founder burnout actually happens surprisingly often. As Naval says: “Startups don’t die when they run out of cash, they die when the founders run out of energy”.

What can a founder do to protect themselves or their energy?

Stress less and have fun.

That’s probably the most basic thing you’ve read in this blog post, right? But it’s true.

Jeff Bezos says: Stress primarily comes from not taking action over something that you can have some control over… stress comes from ignoring things that you shouldn’t be ignoring.

Or in other words, stress basically comes from ignoring market feedback as mentioned above. When something isn’t going well, make sure it’s tackled as soon as possible. Any of the above points that lasts for a long enough time, will eventually burn out any founder.

Lack of control, lack of predictability and managing constant chaos costs far more energy than managing order.

Actionable steps:

1. Handle recurring problems and find definite solutions
2. Have a qualified team to support you
3. Assign clear posts to your qualified team
4. Remove sources of stress as much as possible
5. Have fun
6. Take regular completely disconnected breaks.

The above-mentioned type of filters can be visually represented as below. Don’t waste your “many lives” by ignoring them and running into unnecessary walls. Try to anticipate and keep everything under control. Simply put, make things predictable.

startup-obstacles

It’s your job to free your channel from obstructions so you can go through smoothly.|

For the philosophers among us, you can envision this same graph for you having a certain idea and all the obstructions being the thoughts and considerations why you shouldn’t do something. In the famous words of Nike, “Just do it”. Any goal can only be reached, and any game can only be won, by successfully passing the obstructions on its way.

Do it Yourself

Write down any points in your business that you feel you are not in control over, where chaos is currently seeping in, and which, if not handled soon, may threaten your company’s survival.

Assess your company by the company’s characteristics which level you are currently in. And follow the guidance to get out of it.

We hope this blog post gives you a sense of orientation and an overview of how to pass great filters.

PS: This concept can be applied to relationships, businesses, personal lives, the planet and anything you can possibly think of. Just try it!

BTW, if you liked this blog post, why not share it?

Written with <3 by Marco van Bree

About the author

Marco Van Bree Marco is the Founder and CEO of Zengrowth. He loves marketing, distribution and growth and has been helping SaaS companies achieve better results for the last 5 years. You can wake him up for pizza and pick his brains about anything chess related. He is also into self-development and loves sharing his learnings in business.
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