I am sure you all know that there are various surveys, studies and analysis done globally which conclude that majority of start-ups fail.
If this statement makes you feel uncomfortable, it is meant to.
Because unless you feel uncomfortable and, therefore, become more careful you will join the 80%. However, if you do things right and in the right way, there is no reason why you won’t be in the 20%. Since, my company works with start-ups and SME’s for a living; we have interacted with lots of eager beavers… (Young ones with dream, gleam and dollars in their eyes) and have, sadly, seen many of them with same eyes with emotions replaced by dejection, a sense of failure and brooding about their future.
So why this 80% failure rate, here are some of the reasons that I have observed:
1. Doing a start-up because everyone around me is doing. Sometimes when I am at various events, meetings and mentoring sessions I feel as if “doing” a start-up has become a game for both the people and the investors. These are strong words but I hope you know what I am talking about.
2. Weak business model. We all know that most of the start-ups today (especially in e-commerce space) are running in losses. We all know that if we buy something at Rs. 100 and sell at Rs. 80 and use the investor funds (which I believe are more easily available than ever before) to bridge the gap, it will eventually fall flat. Loss leading philosophy can work but only if it is well thought out, is reasonable to execute and turns around to profits within a reasonable time frame and at a reasonable scale. Now, I don’t want to take names here but there are companies and investors which have gone from launch, to seed, to Series A, B etc. and are still not making money. Every next line of investors puts in money at a higher valuation hoping to get an exit at an even higher valuation, but if the basic business model and execution is not sound how long do you think this climbing on each other’s back can happen……I leave the answer to you.
3. Are you really solving a long term problem of your market and customers? Think very deeply, this question has multiple questions and issues hidden. We are seeing start-ups which are solving imaginary, temporary or problems which are not much of a need/pain for the customer. Clearly, a sure shot preparation for failure.
Now, I have said many things above. Due to lack of space, many of course, are left uncovered. But let’s talk a bit about how does one judge if one is serious about a start-up, how does one know that the business model is sound and how does one know if the problem being attempted to be solved is a real, long term need of your customer eco-system.
Here are my suggestions. By no means this is a complete list, I am sure much more could be added but let me give a few: Why are you doing a start-up:
1. Would you like to work:
a. for 16 hours a day
b. have no earnings for at least 1 year
c. get no holidays
d. and no one to recognize you
If the answer is “yes”, then is it because:
e. you think the eventually you will succeed because
i. Many around you are succeeding
ii. You dream of days when you will be driving a swanky car and living in a palatial home or
iii. You are seriously passionate about something and you want to see it coming to fruition? And benefitting the users (Business or Consumers)
If your choice is i and/or ii then please think again. History has shown repeatedly that people who chase money do not mostly get it but people who chase excellence in problem solving make it big.
2. Do you have a good business model:
Try and answer the following question:
a. Will your business succeed even if there was no funding? If it will, just much more slowly, you are on the right track. On the other hand, if your model will succeed ONLY if you got x amount of funding, analyze things again, very carefully, you may or may not be on the right track.
b. At what scale will your business start making money? Is that scale achievable in reasonable time at reasonable level: A business which takes 5 years and assumes 7 times the growth (numbers indicative to show the point) is not a good idea to pursue. Why, because in that time and at that level of growth even a small slip can derail your plans.
3. Addressing a REAL problem vis-à-vis a short term problem or a non-issue:
We are observing that these days’ people are thinking that digitizing anything is solving a problem and thus will work as a business.
Think like this, IT is only a tool, a tool to enable doing things faster, better, in a more efficient and effective manner. However, by itself it is nothing.
Therefore, to be sure, whenever you look at possible business ideas, look at things which have been problematic for people for a long time, things for which people will pay for now and in the future, look at the needs which fill a big gap in people’s lives. Once you have done that augment and/or support your solution with technology. Don’t think technology before the solution, first think solution then think how you will make the solution stronger by using technology.
Although I have not covered all the possible points that I could have regarding deciding about a start-up but the above discussion would have given you a decent picture of what and how you need to go about deciding if you should do a start-up and if yes then why and how.
Manoj Tandon is the CEO and Managing Partner of TMTC, a Growth Consulting firm, based out of India. He is also the author of the book “Growing IT business via Better Client Management”. He can be reached at firstname.lastname@example.org.