Entrepreneur has a dream – to create next Airbnb or Uber. Founders have bright ‘ideas’ – firmly believe their tech start-up can change the market – bringing in millions of dollars. However, in reality, most start-ups fail. Why such bright and talented group of people fail so often and so miserably ?
To be fair to start-ups – any business can fail. For any new business, the growth path is littered with obstacles, uncertainties and insecurities. A wrong decision at wrong time can kill it, especially during early days. However, even with so much uncertainty and insecurities – most small business survive and manage to grow while most start-up, even with considerable funding, fail.
Many analysts have written volumes on start-up failure. But irony is, start-ups continue to fail even with so much accumulated knowledge on start-up failure. There’s a section of society – specially VCs – who believe such failures are OK. They continue to rationalize failure with colourful theories. However, for founders its extremely painful and emotionally shocking to see death of a dream.
Can we prevent at least a part of these failures ? Can we develop an yardstick for measuring chances of success or failure before launching a start-up ? Can we tell an aspiring start-up founder – how not to fail ?
Market Is The Ultimate Decider – Of Success Or Failure
In my view, most important reason for start-up failure is lack of market awareness. If we accept start-up to be a business which must earn a revenue – market connection is inescapable. To be successful in market – a product or service must sell. In other words – there must be Demand for it in the market. How many start-up founders take the pain to check market demand ?
A counter argument is – an innovative product can create demand. Examples cited are that of Uber, Swiggy, Zomato etc. How far is this belief true ?
You Can Not Create Demand
A start-up cannot create demand – it can only leverage existing demand. The demand must pre-exist in market – whether manifest or in latent/dormant form. Markets are balanced with supply and demand – which in turn get influenced by factors such as economy, technology, purchasing power, societal behavior etc – factors, too big for a start-up to handle. Start-up founders mistakenly believe that their big problem solving solution will bring such change in societal behavior that new areas of demand would be created, like Uber. In most cases, such assumptions are based on gut-feeling or personal experience – not on market assessment or customer feedback. Result – after spending millions on a new solution – start-ups discover to their horror – there’s no taker for the product – demand simply does not exist !
But then, what about Uber ! isn’t it an example of demand creation ? Regrettably No ! Demand for taxi service has always been there, reason taxi companies were operating in the market. However, Uber is not just another taxi firm, it disrupted the taxi industry by bringing tech-based innovation. Its innovation or new way of conducting traditional business gave birth to new kind of on-demand service. Same is the story of Zomato, Swiggy or many such tech-based on-demand services.
Before starting a new venture, start-up founders must talk to potential customers – an ‘idea’ is simply not enough !
A Product Does Not Sell On Its Own
Start-up founders have almost insane obsession with product development but lacks the zeal to assess market or customers. They think a good product sells on its own, or its the job of sales people. Nothing could be further from truth !
A product – even a good product – does not sell on its own. There must be an organized drive to sell it. The ways of selling are as important as product features, perhaps more ! What will be branding strategy, market positioning, promotion, distribution ? A clear marketing, sales and distribution strategy must be in place along with product development.
Distribution plays very important part during early days of product development. Which channels to use – is development taking care of distribution channel requirements ? For a product, issues like packaging, channel partner margin, target market etc. plays very important role. For a service – issues like co-marketing, co-branding, channel partnership etc. will have important bearing on product features.
Customer Connect – The Big Daddy Of Product Feature Selection
Customer feedback should form the basis of product features. A product must offer value proposition high enough to command a comfortable price. The ‘value’ here is in the eyes of customer – not that of founders. Simply said – customers must decide which kind of features the finished product should have. This requires constant customer interaction – a painful and time consuming task. Perhaps, its better to release a beta version with limited feature-set for quick assessment of market trend and gradually develop it version by version – than spending millions of dollars and months/years to develop a final ‘ideal’ version.
Slow But Steady Wins The Race
Start-Up founders dream of overnight success – but in reality, it takes years to make an overnight success. Uber started in 2009, Airbnb in 2008, Facebook in 2004, Google in 1998. It takes years of hard work, market challenge, competition, uncertainty and insecurity – to achieve success. Most start-up founders aspire to achieve everything too fast, too soon. To make matters worse, some VCs drive them crazy to grow fast. There’s almost a disdain for organic growth, building customer traction and loyalty, starting small and building a solid business brick-by-brick. A mad rush to measure success in terms of ‘Valuation’ rather than market capture.
A business may take considerable time to stabilize, reach product-market fit, scale business model, win customer loyalty, become successful brand and market leader. Its a game of patience and skillful operation. No amount of money can replace the process – if anything, too much money can destroy it.
Problem Solving ? Throw Money, More Money
This is the problem with funded start-ups – specially those which raise huge sums in seed stage. Easy money gives the comfort to solve any problem by spending money. It might work in some cases but blunts the ability of founders to creatively solve an organizational or market problem. Such start-ups find themselves in deep sea once investor money dries up. They literally live from one investment to another !
Start-ups need more awareness about market dynamics right from product development phase. Postponing selling issues for some future date could prove to be deadly sin. Customer feedback should form basis of product feature. Sales and Distribution strategy must be developed simultaneously
with product development. Founders should prepare for a long haul rather than quick return.