We live in a business climate where the word Start-up has become fashionable and glamorous. Every single day the media is full of stories of start-ups raising crores of rupees in funding for their lofty ideas. Leading the pack are companies like Flipkart and Jio which for some reason are still called start-ups. Not to be left out, the central government has jumped on the bandwagon and has started initiatives like Start-Up India and certain states like Goa have followed by announcing their own start-up policy in which they promise to handout lots of money to local Goans who wish to “Start-Up” in the IT space. All this talk has led to a start-up race where all one needs is a lofty idea (On Your Marks), an angel investor who believes in it (Get Set) and the start-up is a Go. Well, not really, as only 1 in every 100 start-ups manage to cross the finish line. If you are thinking of launching your own start-up or have already done so, it’s time to STOP! take a deep breath and understand the main reasons for start-up failure and how to avoid them.
Only 1 in every 1000 start-ups manage to get funding and only 1 in 10,000 start-ups that get funding end up being profitable companies within the first 3 years. The main reason for these statistics may surprise you. Almost half of all start-up ideas have no demand or customer acceptance. Which means, no matter how great you think your idea is or what problem it might solve, the market just does not buy it. People are afraid to try a start-up’s product or service and they fear that it’s going to fail anyway. Unless your product or service really solves a very serious problem or taps into a hidden need, people will simply refuse to try it or refuse to pay for it.
Most start-up founders try to keep their idea secret as they fear that it might get stolen or copied. They are too focused on trying to “perfect” it quietly without extensively testing it during the development phase and they miss getting crucial feedback from potential paying customers resulting in the product being rejected when it is finally launched in the market. One can easily avoid this problem by starting with a basic prototype and offering it free to a select group of targeted potential customers who will work with you and give you constant feedback to make the product market ready. A time will come when this group will demand the completed product sooner rather than later and they will be willing to pay for it.
Why do you want to start a company, just based on an idea? Have you asked yourself this question? If the first answer that comes to mind is “I want to make lots of money” then it’s best not to start and look at other business opportunities like franchising. A founder who cares deeply about his idea which solves a major problem or identifies a need works more than 100 hours each week with very less to no money for themselves in the beginning and is a constant learner willing to make all the necessary adjustments based on feedback. There are no shortcuts, lots of failures along the way and dealing with rejection becomes a way of life. Ready to sign up now?
Let’s talk about money. Most start-up founders are dreamers and creators who want to build the perfect product or solution and be everyone’s hero. They start believing all those stories in the media about how easy it is to raise money for a lofty idea and think that it would be very easy to get funding as they idea is far better than the ones currently getting the money. Nothing could be further from the truth and not getting funding in time is the second biggest reason for start-up failure. It is important to have a key team member from a strong finance background who can keep complete track of the money. It takes strong financial discipline to ensure that you only spend on items that are necessary and conserve all the cash you have for that rainy day, as you will have many rainy days during your start-up journey. The smart entrepreneurs are in constant networking mode with potential investors to ensure that they get the funding they need at the right time.
The big talk today is about IT start-ups. You will be surprised to know that more than 50% of IT start-up founders have no IT skills. Yes, you read right, they don’t even know how to do basic coding, the one important skill needed to develop the right product sought after by customers. Founders that lack the key necessary industry skills are the third biggest reason for start-up failure. If you are one such founder then you better be bringing some strong business development and marketing strategies to the table to make up for your lack of IT skills. Having a skilled coder as your co-founder and matching that with your in-depth knowledge of the market can greatly increase your chances of success. You can also beat the odds and increase your chances dramatically if you are able to recruit, motivate and lead a team of like-minded talented professionals. Having a clear vision and leading by example are key attributes required in a start-up founder and need to be demonstrated every single day.
So are you ready to constantly learn and grow? Are you ready to deliver real value to your customers? Can you demonstrate that people would be willing to pay for your product, sooner rather than later? If you have answered YES to all these questions and are focused on chasing excellence it’s time to be On Your Marks, Get Set, GO!!
(Rajula Gupta is a serial entrepreneur, international business coach and start-up mentor)
