Since a startup is a new business that doesn’t yet exist, the default outcome is for it to fail. Everything has to go right for it to succeed!
Starting a high-growth business is a roller coaster. Founder-CEOs feel pressure to keep up the facade of success, even when things are actually falling apart behind the scenes.
Below mention are the things if done correctly then can reduce the chances of failure to a large extent.
Make something that people Want / Do not start fancy:
This is obvious but many young entrepreneurs forget to understand what customer need.young entrepreneurs forget to understand what customer need.
They may have great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc, but what they didn’t have was a business model that solved a pain point in a scalable way.
Start with the problem and then develop a product or solution around that problem.
In nearly every failed startup, the real problem was that customers didn’t want the product. For most, the cause of death is listed as “ran out of funding,” but that’s only the immediate cause. Why couldn’t they get more funding? Probably because the product was a dog, or never seemed likely to be done, or both.
No matter what kind of startup you start, it will probably be a stretch for you, the founders, to understand what users want. The only kind of software you can build without studying users is the sort for which you are the typical user.
But this is just the kind that tends to be open source: operating systems, programming languages, editors, and so on. So if you’re developing technology for money, you’re probably not going to be developing it for people like you. Indeed, you can use this as a way to generate ideas for startups: what do people who are not like you want from technology?
Too many startups begin with an idea for a product that they think people want. They then spend months, sometimes years, perfecting that product without ever showing the product, even in a very rudimentary form, to the prospective customer.
When they fail to reach broad uptake from customers, it is often because they never spoke to prospective customers and determined whether or not the product was interesting. When customers ultimately communicate, through their indifference, that they don’t care about the idea, the startup fails.
2nd most Important thing that will determine the success of your startup is TEAM.
It’s no coincidence that startups start around universities because that’s where smart people meet.
It’s not what people learn in classes at IIT and IIM that has made companies spring up around them. They could sing campfire songs in the classes so long as admissions worked the same.
A company is typically founded by one or a few committed people who carry their vision forward to create some kind of product: an Apple computer, Amazon.com, eBay, Facebook or Salesforce.com.
All of these companies had one or more people who had the vision and the commitment to see it through to success.
“A founder’s individual characteristics are important but what’s more important is that person’s ability to bring a bigger and more experienced team with them,” the researchers say. “And the bigger that team the more likely the firm will succeed.”
Startups come and go for a lot of reasons, but a lot of good ideas fail because the founding team fails to take into consideration the people factors.
“It is also true that top investors and incubators place such heavy emphasis on team. Ideas change, products pivot, markets can take unexpected turns but people tend not to change.”
Do not have enough money to run:
To make all this happen, you’re going to need money. Some startups have been self-funding– Microsoft for example– but most aren’t.
I think it’s wise to take money from investors. To be self-funding, you have to start as a consulting company, and it’s hard to switch from that to a product company.
Mahesh Murthy Advice on Quora is a perfect fit here. Here’s what he tell the startups he talk with.
Do one single spreadsheet. Mark the months out in columns – take it out some 18 to 36 months. In the rows, start by listing every single estimated expense – in the month you make that payment. Every single one – salary, travel, tea, coffee, future hires, raises, every single thing you can think of. Sum these up in every column – these are your total estimated costs for that month.
Once you come to the end of this, then start listing the estimated revenues from all the work you’re doing – in the month the revenue hits the bank. Guess whatever you can. For a media business, estimate pageviews, ad fill rate, CPMs, 90-day credit cycles, whatever. For an e-com business, estimate visits, conversions, leakage, credit card payment collection, everything you can. For a B2b business, estimate the number of calls it’ll take to get an appointment, the number of appointments to turn it to a hot lead, the amount of time to turn that into a sale, and the time it takes to turn that sale into a first cheque and so on. And yes, be conservative. Sum this up in every month’s column. It’ll likely start with zero – but these are your total estimated revenues every month.
Now, do the est. revenues minus est. costs row. It’ll likely start with a negative number. And as you go towards the right, the negative will likely reduce till a point when the number becomes positive. Call this the “funding gap”
Do another row which does a cumulative of every month’s funding gap. This number will keep rising – at one point it’ll hit a peak, and then descend as you go right on your spreadsheet.
This “peak funding need” is the amount of money, at the very least, that you need to have. Add 3 – 6 months more of estimated costs just to be safe. Go get that amount of money from somewhere. Or figure out you can get that money from somewhere. Then start. You’ll drastically reduce your chances of failing.
Don’t start without this.
And yes, as said above, running out of money is a real momentum killer. You start getting wobbly long before every last penny is hoovered out of your account — if you’re paying attention, you know it’s going to happen well ahead of time and scramble to address it, but sometimes it’s still too late to turn the ship.
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Apart from these top 3 reasons, The market research firm CB Insights recently did a post-mortem on 101 failed startups. As part of that effort, they asked the people involved in each startup why they thought it had failed.
The study surfaced twenty reasons, with most startups citing multiple reasons.
Since many startups offered multiple reasons for their failure, you’ll see that chart highlighting the top 20 reasons doesn’t add upto 100% (it far exceeds it). Following the chart is an explanation of each reason and relevant examples from the postmortems.
At the end I just want to add that If you want your start-up to succeed, as the leader, you must be naturally passionate about the market you’re in, the ideas you pursue, the people you hire, the way you communicate, the office you design, the plans you execute, and most importantly, the things you do in your business minute to minute.
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If you have experience running a startup and have point to add, please share via comments below.