Doing a start-up these days is considered socially sexy. The disclaimer here is: “Most of the things you knew about doing a start-up are wrong.” This is the single-most important reason why most entrepreneurs end up failing or remain stealth for years waiting for funding. The reality is that most ideas are easy to think of. They simply, just, don’t count.
The moment one gets an idea, you would do some enquiry. After that, you have a handful of rumours and a bucket of spin. What happened to Whatchamacallit.com is anyone’s guess. The truth is, it fails because of the same reasons so many other start-ups fail. It is indeed surprising sometimes that there are some special people who find exceptional ways to kill their business. However, a majority of start-ups fail in far more mundane ways.
Let’s look at the hypothesis of a first-generation entrepreneur:
A 34-year-old professional with exceptional credentials has a “killer product idea” (he calls it his “passion”). He conducts market research (it always looks absolutely and flawlessly amazing). So he writes a “glorious business plan” which results in “funding” and he “starts” building the start-up. Thanks to funding, he makes headlines and gives keynote speeches. But then he slips up.
So, what went wrong?
There are seven things that went wrong, either most or all of them.
* The plan is based on what he thought the “user” wants. Or of course, his girlfriend still thinks it is “cool”. But that was not the case. He should have asked a “real customer”. One shouldn’t tell their users how they should act, it usually backfires.
* It is very easy to get carried away for any sane human. With too many entrepreneurs these days, it is indeed a fact that they are too much in love with “technology”. Almost to the extent: “Wouldn’t it be cool if we let them do a video call with the dead?” It is like building an elephant, but you still haven’t tested any of it. The simplest thing to do is to keep it simple and to the core. The thumb-rule is to always “market test”.
* A lot of entrepreneurs bunch too slowly. If you are building an elephant, you will keep holding back until everything is “perfect”. But it will be never be fully ready and tested. Also, since we are talking about building an elephant, you will have a never ending “funding” problem. The most dangerous risk here is that competition will hit the market with a good, basic solution. The sane way is to go-to-market with a minimum viable product and then build the “functions, features and jazz” as the user demands. Isn’t it more logical? Remember, more start-ups fail due to a lack of customers and not due to a failure of product development.
* The next reason is on the “jokes” list. The sales strategy was to acquire 1% market share. Hey, this is not a sales strategy. If you are chasing a billion-dollar market and you think that ten million is a walk in the park, you are wrong. Instead, answer tougher questions like “who will be my first few customers?” “How will I reach them?” “What will it take to close a sale?” “How many sales people do I need?” and so on. Based on this capability, you should be able to project a more real sales forecast.
* Another is the attitude that “my product has no competition.” Remember, even if you are chasing a very small market, there is competition. Maybe not feature-to-feature on comparison, but there is competition. So, make sure you are chasing a big market. Then make sure you know even the smaller indirect competitor extremely well. If you don’t know the players, how will you play the game?
* The next reason is a rational one. Basically copycat—launching an internationally working business model locally. Sure, it has been launched successfully, but there are chances it will work locally only if you are the first one to do it locally; also, you have to be “different”, not “same but better”. There is a difference between the two.
* The last and a very critical reason is something we all have heard about. Burning too much cash, too fast. A lot of entrepreneurs tend to ramp up costs in the hope to see that “projected” revenue. However, these excel sheets are known to be notorious and spineless. They never stand the customer contact. The better way and the more rational way is to go-to-market fast with a basic product and generate revenue while tracking your conversion metrics. Only when the conversion metric tells you that you are getting it right, you should grow your spend.
These are some of the most crucial aspects, failing in either one or all of them makes most start-ups fail. And, of course, the riskiest of all is “to not start at all”.
Entrepreneurship is not easy. It is generally for those who have the courage to fail in the eyes of the society while remaining mentally strong and balanced.
The author is managing partner, Instaura Consulting, the flagship company of DeGroup, a start-up lifecycle management and investment banking outfit