Starting a business can be an incredibly exciting time. If you’ve been used to a more corporate environment, the difference is immense. The control and freedom to steer your company in the direction you want can be tremendously fulfilling.
At some point, the commercial reality of running your own business will bite and your financial standing begins to loom large.
Are you gaining market share? Are you covering costs? Do you have enough in the coffers to keep the lights on for another month? Do customers share in your excitement about your product?
If the answer to these questions is “no”, the consolation prize is that you are not alone. The sobering reality is 90% of all start-ups fail.
Why do start-ups fail?
CB Insights created a post-mortem list of reasons that start-ups fail. Incredibly the most common reason for failure was companies making things that people didn’t want. Analysing 101 start-ups after failure, CB Insights found that 42% of them closed as a result of there being no market for their product.
“Who would build something that no-one wants?” I hear you ask… the answer is lots of companies. And it’s not limited to start-ups.
The Betamax VCR, the Segway, new Coke (and countless products from start-ups that we’ve never heard of) are all examples of products built by companies that people didn’t want. While a larger company can write off the loss on move on to the next product, this level of rejection could bury a start-up.
Quite often, the product or service being developed by a start-up is the passion project of the founders. It is a concept they love or a cause they are looking to champion. A failure on these terms goes beyond the balance sheet. It can destroy confidence, split up friendships or even ruin reputations.
Rather than concentrate on why others failed, we can flip the post-mortem results to create a scorecard for success. This won’t make it easier to succeed but at least you might have more visibility on whether you are headed the right direction.
Does the market demand your solution?
As we mentioned above, quite often the product or service of a start-up is something the founders passionately believe is a ‘game changer’. The only place where that is decided is in the market.
The Collison brothers created Stripe because they felt e-commerce was being crippled by the payment systems of the day. There were close substitutes available but rather than fearing the competition, they took this to be confirmation that there was a market for their product. They made sure their version was better – integrating with more platforms, comprehensive customer service and lower administration charges.
Have you got adequate funding?
If your start-up is merely moving from funding pitch to funding pitch, you don’t have a viable business, you have a money pit. Of course, funding will be of paramount importance in the very early days. But if there is no sign of traction for your product and funding is the only means of supporting the company, you will need to pivot or close.
Have you the right team in place?
Our podcast series, the Complete Small Business Show embraces the idea that start-ups and SMEs, in general, are few people doing much work. New, small companies do not have the luxury of an office manager, a receptionist, an HR professional, a social media manager, a business coach… these are all tasks that must be completed by the team, regardless of their title. A successful entrepreneur ignores nothing and sweats the small stuff because if they don’t, nobody else will.
Thomas Parisot, a French web developer, wrote about the failure of Dijiwan, a start-up he was involved in.
His TL;DR summary is:
“A good product idea and a strong technical team are not a guarantee of a sustainable business. One should not ignore the business process and issues of a company because it is not their job. It can eventually deprive them from any future in that company.”
How do you rank versus competitors?
As we mentioned earlier a competitive marketplace gives you proof positive that there is a market for your product or service. Your ability to compete can rely on several variables. An important factor to remember is your product does not have to be the ‘best’ to succeed.
If you consider the smartphone market, some tech bloggers consider either the Huawei P30 Pro or the Samsung S10+ to be the best phones on the market. Both Samsung and Huawei have a greater share of the smartphone market than Apple. However, Apple is making more in profits each year and is a much larger company by market capitalisation. Which leads us nicely to our next point.
Does your pricing make you profitable?
You can argue about the technical merits of an iPhone versus a Samsung or a Huawei, what you can’t argue about is Apple’s ability to get customers to pay a premium for their products. Regardless of whether Apple products may or may not be the best around, they have a loyal customer base that will not buy from any other manufacturer
As we saw in the previous section Samsung has almost double the market share Apple has for smartphones, yet Apple is making more than double the profits of Samsung from its devices.
As a start-up, if you are trying to be the cheapest, that’s probably a good sign that something is wrong. Dropping your price to compete will lure you into a race to the bottom.
Which, again, leads us on to our next point…
Are your marketing and branding making a wave?
Simon Sinek addresses the success of Apple in his legendary TED Talk – How great leaders inspire action.
“If you don’t know why you do what you do… then how will you ever get people to vote for you, or buy something from you, or, more importantly, be loyal and want to be a part of what it is that you do. The goal is not just to sell to people who need what you have; the goal is to sell to people who believe what you believe.”
In homogenous markets, you are simply competing on price. The company that can scale production will win all the time; these are not typically start-ups. If you compete on technical features and want to be the best there is no guarantee of success, again these don’t tend to be start-ups.
However, if you can communicate ‘why’ you do what you do, you won’t need to be the best, or the cheapest to attract loyal customers. This is not easy but could be the most lucrative pursuit of your business.
It may be unfair to compare Apple’s journey to that of a start-up, but that is entirely the point of this article. You don’t build a company to stay in start-up mode. At some point, you need to stop starting up and be a fully-fledged business.
If you can tick off a list that includes
- Healthy market demand for your product
- Adequate funding for the future
- Having the right team to lead your business
- The ability to compete (and win) against your close rivals
- Having a pricing structure that makes you profitable
- Marketing and branding that is making you stand out
… congratulations, you can stop starting up.
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