It takes more than just passion and vision to succeed in launching a start-up and successfully building it as a sustainable business.
Great ideas can catch the enthusiasm of investors and the initial market, but making it a profitable business model that ensures return investment, creating long-running stream of income and employing manpower who will commit to the company’s objectives for the long haul, is an entirely different battle.
If business was war, mounting a start-up is setting the stage for a long-term campaign to push your product publicly, win your intended market over, and neutralize if not demolish your competition. To paraphrase the ancient military genius Sun Tzu, an army wins a war even before the first arrow (or shot) is fired. That means preparation had already been done long before the troops were sent into the actual arena of conflict.
The same holds true when building a startup.
While the age-old stories of bootstrapping—creating a kingdom from out of your garage and holding all-nighters with your business partners in your living room—sounds bold and exciting, that alone cannot substitute the need for careful and painstaking preparation.
Prepare, research and always evaluate. Neglecting these start-up essentials have caused many startups to fail. Let’s take a look at why they adversely affect the 5 pillars that are crucial to an enterprise’s success. Avoid doing those bad ‘habits’ and instead cultivate a solid groundwork that will increase your chances at making the cut. Or in other words, seeing your business, become successful.
1. Failure to understand the market
It doesn’t matter if you think your product will solve the world’s problems. What matter is what your intended market think. Also, moving forward, have you truly identified your target market?
Never fall in love with your idea to the point that it obscures your understanding of what your prospective customers really need. Remember, they will be the ones paying for your product. To shell out their hard-earned money, they will need to have a desire for your product. That pivotal point in time wherein they are persuaded to purchase is the ‘pain point.’ Find that out and you would be well on your way towards success.
How to make the cut:
After you have set the specs and identified the value of your product, evaluate your readiness to sell to your intended market with a ruthlessness that will make a Third World dictator blush.
Look at how your target responds to similar analogs of your competition carefully. What made them buy one and ignore the other? Don’t only ask friends and colleagues, who will just support you. Float the idea among your harshest critics if necessary.
Dismiss the bravado of sales people, who say they can sell anything. Persuasion stops at a certain point. Remember, the success of your product depends on the willingness of your customers to pay. It boils down to these questions: Does your customers really need your product? Why? How can it make their life better? How can it help them solve their problems that your competitor can’t? Why should they pay for it at that price if they can get another similar product at a far lower price?
Understand your intended market and align your product to their needs accordingly to improve your chances at success.
2. Unknowingly creating a flawed product
Your market’s receptivity to your product depends on its execution. After ironing out all the flaws in the design stage, you have to ensure it delivers on your claims or promises when it you should.
That is where most startups fail. In their haste to roll out the first models off the factory line; they don’t do enough quality control tests. They want the product out ASAP in order to generate sales that can keep impatient investors off their backs. But if it wasn’t vetted, the product could malfunction during, say, an actual client presentation or, worse, after the sale has been done and while customers are using it at home or work. Nothing kills customers’ appetite like a product that does not deliver according to expectation. Their negative reaction can spread like wildfire, forcing any businessman to do damage control or risk losing both current and prospective customers.
How to make the cut:
Take as much time as you need to develop your product. Normally it has to go through several phases: concept, research, development, testing and evaluation, market research, and finalization.
Safeguard your product’s development. Do not compromise, regardless of whether your startup is making money or not. Allocate quality time to each phase and run it through several tests. Consider letting your harshest critics conduct the evaluation to ensure it’s done thoroughly. Iron out the kinks and subject your product to the toughest test conditions. Improve in the areas that need improvement—even if it hurts your ego.
A product can change over time, but the first model has to be functional the moment it leaves the assembly line.
3. Inability to gather enough capital and create a healthy cash flow
Startups fail when they run out of money, period.
Buoyed by enthusiasm and a go-getter attitude, many fledgling entrepreneurs start with only a shoestring budget unsupported by other channels of resources. They rely on one investor and crash after they pull out. They don’t anticipate unforeseen expenses spend without securing reserves.
Truth is, you don’t go on a trip without filling your gas tank. A long trip requires additional cans of fuel stored in your trunk. Or, at the very least, you need a map or GPS to advise you where to line up for gas when needed. Apply this principle to your startup or risk your engine stalling in the middle of no man’s land.
How to make the cut:
Spend smart and save. Create a safety net that can sustain you for at least a year by watching your expenses daily, weekly, and monthly. The money that goes out must never exceed the money coming in. Reduce where you must: borrow a car instead of buying one; hire a temp instead of a full-time employee; arrange barter deals with willing suppliers instead of paying them.
Do not rely on your initial capital. Look for additional investors, or develop other channels of income. This is possible even while your product is in the development stage. Create an ancillary or related service aligned with the goals of your organization, which can even support your final product. For example: While your planned restaurant is still months away from opening, you could start delivering certain food items to nearby offices. This can generate additional income while creating an initial buzz for your soon-to-be establishment.
4. A weak management team
A company is only as good as its leaders. To be successful, your co-founders must be committed with the necessary skills and work ethic.
That is where you follow your head instead of your heart. It’s easy enough to partner with relatives and old classmates because they are available, supportive, and inexpensive, but will they be able to fulfill their responsibilities once the challenges become tougher and the hours longer? Can they handle emergencies without breaking down? Can your niece, who just graduated with a marketing degree, start pitching with heavy-hitting negotiators? Can your beloved, elderly bookkeeper aunt do the more complicated spreadsheets that investors are looking for? Can your charming best friend do more than just wine and dine the ladies but actually close the sales with highly important clients?
How to make the cut:
Separate personal relationships from your professionalism. Form a winning team, who will push themselves—and you—to achieve all your goals. Vet your future partners to see whether they have the necessary competencies and network that will make your company grow. Make expectations clear, especially when it comes to sacrificing and sharing rewards. Above all, ascertain that your partners are worthy of your trust. A startup is like fighting in the trenches where you have to be able to watch each other’s back.
5. Having the wrong business model
Failed startups didn’t make the cut because they didn’t have the right business model. Generally speaking, entrepreneurs know where to get their financing and how to manage their expenses, but they may have an incorrect perspective of how they can make the sales. Sales, is the lifeblood of an organization. Failure to generate a healthy amount will weaken any entrepreneurs’ financial standing, if not cripple and eventually kill the company.
How to make the cut:
After identifying your market, zero in on the method of generating sales from them. For instance, if your product is a content marketing site, will you be earning your keep through online advertising or offline services? If you are selling a piece of educational software, will the sales be coming from the training institutions that will use your product, or their students who will be immersing themselves in the courses? Check the sustainability of those channels to ensure they can keep your business running in the foreseeable and even distant future.
From the conceptualization of your idea to your product, target market, financing, sales channels and even your own management team, devise a plan in putting up and assembling each of these aspects of your start-up thoroughly. Research and test as much as you can, allotting space for the unexpected. These are the ways that can help you to build your startup, keeping it sustainable and not end up as a casualty, like many other would-be businessmen.