In 2016, close to 659000 startups were launched in the United Kingdom alone – marking a YoY increase of more than 8.55%. On a global basis, around 137000 new companies start operations everyday – with the annual figure for startup launches worldwide standing in excess of 50 million. In the United States too, the startup revolution is at an all-time high, with ~7.5% of job-seekers opting to start their own businesses in 2016 Q4 (the corresponding figure in 2015 Q4 was only 4.8%). Apart from the US and the UK, the number of startups is rising…and rising fast…in Latin America and Europe.
The remarkable rise in startup launches across the globe should not, however, mask the fact that a high percentage of these new businesses fail within the first year of existence. Taking the daily averages once again, approximately 120000 startups wind up business everyday – and almost 90% of all startups ultimately fail. Unavailability of funds, improper business scaling, and inability to show adequate ROI to investors feature among the chief documented reasons of such failures. However, the problems, more often than not, lie deeper. If you are planning to launch a startup, these factors will give you a fair idea on whether it will soar or crash:
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Having a detailed budget
On average, 3 out of every 10 new startups run out of funds before becoming properly established. That, in turn, brings to light the importance of framing and maintaining a detailed budget – while planning all the aspects of a new business. Following a pre-decided budget helps entrepreneurs avoid unnecessary expenditure, and analyze all the accounts carefully, on which money will be spent. The key factor over here is making optimal use of available resources at all times. It might be a small $100 startup or a large-scale business venture – working without a budget and ‘taking things as they come’ is an absolute no-no.
Note: As a CEO, if you are not too fond of number-crunching, hire a qualified accountant for the purpose.
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Availability of funds
If there are no funds, there will be no business – it’s as simple as that. According to a recent study, around 80% of startups are funded by the owners themselves, while a measly ~1% are sponsored by venture capital (VC) firms. Depending on the line of business you will be working on, find out the approximate expenses required to get started – and decide whether to raise the funds from your own pocket – or if taking a small business loan, or pitching to reliable angel investors would make more practical sense. There are several crowdfunding sites (e,g., Indiegogo, Kickstarter) which can help you out as well. It also has to be kept in mind that, in the context of startups, ‘resources’ do not only refer to ‘funds’ – and there are lots of useful free stuff (free software, supplier credit, probable partnerships with customers, etc.) that can get a new business going. If your startup is to emerge a success, access to adequate funds and other resources is an absolute must.
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The motivation factor
Do you have a regular day job, and are thinking about launching a startup only for some extra cash? If yes, you should better lay off the idea. Nurturing a startup calls for super-dedicated motivation on the part of the founder (if the main man isn’t motivated enough, how will the others be?). Ask yourself whether you will be able to give your entire time towards the new business – taking up different responsibilities, and forgetting about weekdays and weekends and working hours – until the startup’s operations find a steady footing. Do not be afraid to wear different hats simultaneously (you might have to manage projects, do a bit of coding yourself, handle a couple of interviews, check designs, and the like). A startup is just like a baby – if you are not prepare give it your best care and attention, you might well not have it.
Note: Interestingly, only 1 out of every 5 startups with single owners manage to survive. The success rate jumps to 47.5% when there two people join hands to start a new business.
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Talent acquisition
You are not going to have a startup if you don’t have ideas…preferably, lots of them. However, ideas look good on paper and boards only, and there needs to be a carefully recruited, well-trained team ready at hand to implement these ideas. Among startups across the globe, nearly 24% face problems due to not having ‘the right team’ from the very outset. Chalk down the job titles that will be present in your company, and hire the most suitable candidates. Look out for people who have the ‘can-do, will-do’ attitude, on top of academic/professional qualifications. Working with freelancers can work for some time – but keep in mind that it is a stop-gap solution, and full-time in-house manpower will be required in the long-run.
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Existing need for your product/service
Consider this: you have the ideas for really innovative arcade games. Will it be a good idea to invest time and money to create a startup for making such games? No, because the world has moved on from arcade games – and there will not be a market for your products. Before spending a single penny, do your homework to find out whether the product/service your startup will offer is likely to have adequate demand from prospective customers. Avoid selecting fields of work that are either outdated, or are too far-fetched. Ideally, work with something that you already like and/or are somewhat familiar with. Study trends, analyze markets, and identify ‘demand gaps’ where your startup can slot in and be economically viable.
Note: Not having a large enough market for their products/services is the principal cause of failure for a whopping 42% of all startups. If your business idea is not tenable, your startup will go kaput!
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Focus on discipline and transparency
A classic sign of whether your startup is ultimately going to make it is the degree of honesty and integrity with which you start out. There should be no information that you might have to keep away from other stakeholders (co-founders, employees, first set of clients) at any time. Manage your operations in a completely transparent manner – just as you would do if everyone was watching you at all times. Follow up with your strong work-ethic with uniformly high discipline standards. The discipline should cover everything – right from budget and expense management, to operations and quality of service (QoS). It’s all about establishing a strong brand reputation – a positive buzz about your startup – and the importance of maintaining high business integrity levels for that is paramount. If you have things to hide from others at the start, bigger troubles are bound to crop up soon.
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Is a properly researched business model in place?
If not, your startup is not ready to take flight just yet. Sit with your team and create a well-defined business model – specifying the fixed cost levels, the estimated revenues and sources of earnings, the operating costs, the gross margins, the profit levels, and other metrics that you might want to follow. Find out the payments and pricing models that would be best suited for your business (your products/services should, of course, be competitively priced). Find out what the reasonable estimates of profit margins come out to be – and if the numbers do not seem good enough, postpone your startup plans for the moment. Get started only when you feel every factor is in favour.
Note: 18% startups report problems with their costs or pricing (or both) at fairly early stages of their life. Having an in-depth business model helps to avoid such problems significantly.
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Validated customers
Investing on a startup is risky business. The only way you can minimize the risk factor (mind you, the risks cannot be totally mitigated) is by ensuring that your business has some ‘traction’ – that people will actually be interested to pay for what you will be offering. More importantly, your products/services should have an apparent edge over that offered by your competitors. Close to 20% startups cannot cope up with the existing competition, and perish as a result. A smart option would be start your operations from a home office, before having a startup formally in place. That will give you a fair idea of the volume of ‘validated customers’ you have. It’s like have a captive audience/buyers for your business – the bigger the pool is, the better.
Note: For gaining business traction and exposure, you also need to have strong, updated marketing and promotional strategies in place. Generating awareness among people is one of the stepping-stones for gaining recognition.
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Scalability and adaptability
As an entrepreneur, the onus lies on you to identify opportunities to improve your startup all the time. Be dynamic with your operations, keep track of the latest tools and technologies and market trends, and find out how you can tweak your operations to take things forward. Be prepared to change policies, scope of operations, and other aspects of your business – if the final result would be good for the business (i.e., for the ‘greater good’). However, be wary of scaling up your business too fast – without considering whether such a move is necessary. Nearly 3 out of every 4 internet startups face problems due to premature scaling. The world of business and technology is constantly evolving, and you need to have flexible plans in place to make the most from every situations. Keep in mind that your best-laid early plans might have to be changed (or even scrapped) at a later date.
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Experience and networking capabilities
There is an element of ‘trial-and-error’ involved when you are starting out with a new business. However, if you have a degree of credible experience in the concerned field, that will help you minimize that factor – and put you in a relative ‘comfort zone’ for business. Another absolutely must-have quality for any new entrepreneur is powerful networking skills. You need to be able to strike up connections with people at the ‘right places’ (investors, partners, clients, etc.), and make the most out of your existing connections. In addition, your experience and dedication levels should also be inspiring enough for the others to give their best. Never work with a ‘siege mentality’ (‘Us vs Them’ at all times). Be social, and constantly strive to expand your network. A startup that tries to operate in a vacuum is almost sure to fail.
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Ability to handle adverse situations
Things will not always go according to plans. Sales might go down, the number of clients can fall off a cliff – and there might even be loss of in-house talent (employee turnover is high in most industries). The key for success for a startup lies in the ability to tide over such tough scenarios, without hitting the ‘panic button’ or going into some sort of a ‘survival mode’ (say, finishing all projects at hand as quickly as possible, taking up more work that it can handle, etc.). Staying true to a clear business ‘vision’ is mighty important at such times – and you need to look for ways to bring your business back on track. If you feel that your company will run like a well-oiled machine and there will be zero shocks, managing a startup is probably not the thing for you!
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Avoiding negativity
In an earlier post, we had discussed the importance of avoiding toxic employees. One of the biggest traits of a good entrepreneur is optimism – and positivity is vital for the overall well-being of your business as well. Do not leave any room for workplace gossip (you will have a relatively small team to start off, anyway) – and make sure that there are no rumours or negativity doing the rounds. The best way for ensuring this being completely frank with your top-down communication with employees, and encouraging two-way conversations. Everyone should be in sync with the overall organizational goals, and there should not be any conflicts (general workplace arguments or conflicts of opinions with investors/other stakeholders). A startup where everyone is happy and sincere is a startup that will do well.
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Putting technology at the fore
Ideas are great – but unless you have the technology to work on them, they are of little use. In any digital startup company, the focus should be on establishing a powerful technology platform (complete with coding tools, software engineering support and other stuff). Once the tech is in place, and there are people who have been trained to handle it – it will be easy to follow an agile development/production methodology. In case you are not a technical person yourself, consider having a chief technology officer (CTO) at your startup. An ‘ideas-first’ approach is not a great way to do business – and you need to get the technology framework ready from the very outset. A business that keeps shying away from implementing the latest technologies is likely to be left behind.
Choosing the right time for launching a startup is also vital. Make sure that you will be able to give your undivided attention to the business in its early years (if you are planning a long vacation, or are set to become a parent in a couple of months, now will not be the right time to get things started). A dynamic approach, together with seamless two-way communication with all parties, will also help you to not miss out on pivots (cause of failure of 7% startups) or facing problems due to ‘misunderstood pivots’ (cause of failure of >10% startups). Of course, the final product/service should be excellent in terms of quality – and customer support has to be top-notch. Nothing kills off a startup more effectively than bad word-of-mouth publicity.
When you begin a startup business for the first time, you hope for the best – but must also be prepared for failure. It has been seen that ~20% of people whose first startups have failed, taste success with their next endeavours. A single failure should not weigh you down too much.
There are instances of startups floundering in spite of having all the signs highlighted here. Conversely, a new business can flourish even if it does not satisfy a couple of these conditions. However, these are exceptions – and if you wish to maximize the chances of success for your startup, you need to follow these signs carefully.
Hussain Fakhruddin
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