As startup entrepreneurs, we are inspired by the stories of Mark Zuckerberg, the Tumblr acqusition or the string of investments being pumped into companies like Jobberman and Konga. At the back of our minds is the possibility that armed with our startup idea, we will hit it big or make the cover page of Forbes, or both. We want to fund, bootstrap or beg our way to relevance and prosperity, but the glamorous tales we hear are only half the story.
Navigating the journey between idea and pay day is no easy feat when you consider that Angry Birds was Rovio’s 52nd game or that Konga was not an overnight success. Frankly, for startups, the failure rate is higher than the success rate.
While most people argue that the reason why most startups fails is because of a lack of funding, business professionals and venture capitalists say otherwise.They are of the opinion that there are other things a startup entrepreneur needs to worry about before money comes – the idea, its potential, the target audience and go-to-market strategy being part of them.
READ: LEARNING FROM FOUNDERS – SIM SHAGAYA’S STORY
Why then do startups fail? Here are a few reasons why:
1. The idea adds no value
Your startup idea may sound nice but is it a business opportunity? Maybe the idea does not exactly make money but what problem are you solving by making people use your website, application or solution? Are you saving time, energy, efforts or costs? Are you providing entertainment or information for your customers?
It was significant value that made Facebook acquire Instagram, a company valued at half the price, running $2.7 million in losses, with 27 employees and no single profit in its 551 days of existence, $1 billion.
2. There is no market for your product
The size of the market shows the potential for growth, expansion and improvement of a product. This is something investors look out for in a startup. Products should be built not just because you understand codes, but because your market needs it.
A developer can think of cool apps to create but you need to consider the users first. The idea to create an app for old women to select groceries and send their requests to their children who will buy might be an idea, but how many grandmothers are willing to learn how to use an app to select groceries when they can simply call?
While there may be a market, is the size of the market large enough to attract huge investments? How accessible are they? Can they afford your product? Which industry or market is waiting to be explored?
3. You don’t understand your market
So there are people who would use your product, but do you know how the people operate? Do you know the opportunities and challenges that exist in the market you have chosen? While you are focusing on your ‘killer’ product, investors are also investing in you and your abilities to assess the market. If you are creating a disruptive product, how does the conventional method work? How strong is the competition? What does the barrier to entry look like? You are more likely to succeed if you understand how the market works.
4. Nobody knows about your product
Having the perfect product is not enough, you need to promote it. Your marketing strategy is key to the success of your product. As they say in advertising, ‘Creating a product without promoting it is like winking at a lady in the dark. You are doing all you can to get her attention but she has no idea what you are doing.’
Successful entrepreneurs know that a fantastic promotional strategy is not only about big budgets for marketing and advertising, you can bootstrap your way through. Create inexpensive opportunities for gaining new markets, views and reviews, and content marketing will gradually create a chain of loyal users.
READ: THE HANDSHAKE BETWEEN SOCIAL MEDIA AND CUSTOMER SERVICE
5. You don’t understand the financial implications
Entrepreneurs are interesting. We are passionate about our ideas and can go for months without the possibility of profit, but people who will work with you and investors are not charity organisations. Every startup needs to take a long look at the figures around their idea and make hard decisions.
It’s not about having so much money to throw around, it is about understanding how money moves and how you’ll hold up if the funds don’t come in time. How will you manage if you needed to spend money before the product is made? What are your operating costs? How will you manage your working capital? If you hate figures, get someone who doesn’t mind them to be a co-founder.
6. You are not passionate enough
If you don’t enjoy what you do, you won’t last long. Passion is a powerful fuel, especially when profit seems like a long range shot. Startups are run on a lean and mean budget, it is going to be more difficult if you are not passionate about your work.
Investors can smell passion a mile away. Passion will ensure you give your best when the funds are not smiling at you. Even when you succeed and the money begins to roll in, passion, will ensure you do not go on a spending spree forgetting the start-up you helped create.
Not all startup entrepreneurs that follow textbook rules succeed but it will certainly improve their chances. You can reduce the odds by doing an analysis of your own business model, the market, your strengths and weaknesses and the ability to promote it to your target audience.
Now over to you, what other things do you think cause startups to fail?
