What are the key factors for creating a successful start-up? Is there a guarantee to ensure your start-up is a success? What can we learn from failure?
While it is impossible to answer how a start-up business can be a definite success, we can learn from failure and best practices.
CB Insights, a venture capital and angel investment database that provides daily real-time information about venture capital, analysed 101 post-mortem essays by startup founders to pinpoint the reasons they believe their start-up failed. The number-one reason for failure, cited by 42 per cent of polled start-ups, is the lack of a market need for their product.
Neil Patel from Forbes said: "Nine out of ten start-ups will fail. This is a hard and bleak truth, but one that you’d do well to meditate on. Entrepreneurs may even want to write their failure post-mortem before they launch their business. Why? Because every optimistic entrepreneur needs a dose of reality now and then. Cold statistics like these are not intended to discourage entrepreneurs, but to encourage them to work smarter and harder."
So what exactly do successful start-ups have in common? How can you prevent your start-up business to fail?
Below are eight considerations:
1. Finding the right service or product
Part of why Uber has experienced such astronomical growth is that consumers are driven by convenience and price. Giving people a better and cheaper option has been one of the major successes for many start-ups. But that seems an all too easy answer. One thing to keep in mind is that great businesses solve a problem. If you are dreaming of being the founder of the next Uber, start by narrowing down on a specific problem that you have and then fix that problem.
Co-founder of Uber, Garrett Camp, said: “Uber didn’t begin with any grand ambitions, it began as the answer to a simple question.”
2. Listen and learn from your network
There are five types of people in your network: family, friends, encouragers, naysayers and influencers.
Family and friends speak for themselves, and may also serve as mentors. Encouragers are positive people – they are probably not experts in the subject matter, but they love to encourage you and your ideas. Their evil cousins are the naysayers, who have nothing positive to say about your idea. Finally, there are influencers. This latter group is key because they are the ones who can connect you with others and others to you.
Remember also that everybody is a mix of the aforementioned types. Nobody is just an influencer or just a friend.
The key is to know when to leverage the right people at the right time. Finding angel investment is another good reason to leverage on family and friends. Many start-up businesses were funded by a wealthy uncle or an affluent friend. Listen to your network and learn from it.
3. Market research - A must do?
If you are really serious about your idea, you should ask yourself the following questions before getting even started: Is the market and the consumer ready for my product or service? What does my target group looks like?
If your product or service is very targeted - let's say you are only aiming at young, wealthy men - then you need to tap onto the right network. If you are going for a niche, you should find someone who fits the profile of your ideal customer. Find out more about all aspects of your buyer persona. Study similar products in the market, their positioning, distribution strategy, price, packaging and promotion and their strengths and weaknesses. What you want is to test your product in your target audience. You want to create a dialogue with potential customers and let them express what they feel, an open conversation.
4. Why is having a co-founder so important?
Paul Graham, Founder of Ycombinator, said: "Not having a cofounder is a real problem. A start-up is too much for one person to bear. And though we differ from other investors on a lot of questions, we all agree on this. All investors, without exception, are more likely to fund you with a cofounder than without."
A start-up business venture is a journey, and is often shared with other people. Choosing who you surround yourself with as a business owner is critical, but choosing who you will find your business with is paramount. In fact, some VCs consider the business idea secondary to the team itself. Whether you are a first-time founder or a serial entrepreneur, choosing who you will work with is, quite possibly, the most important decision you will make in the founding process. So choose wisely!
5. Prototypes galore
What is a prototype? It is a rough working model of your product or service, giving people a better idea of its potential, functionality and features. Usually your prototype does not need to be fully functioning, but by creating a rough prototype of your vision you will have a much easier time explaining the concept to potential investors.
The goal of your prototype is to prove that your concept works, in the easiest, quickest and most-affordable way you possibly can. You may want to start by taking apart other company’s products. Look for how it has been assembled and what materials are used. If you are creating an online product such as a mobile app or e-commerce site, check out what works and what you can improve upon in your prototype.
One way to explain what you are doing is by creating an inexpensive 3D video. An animation may be sufficient on its own to express the idea, or it may help outline what is needed in a more detailed physical prototype. If you’re building a prototype for software or a phone app, consider beginning by creating wireframes that shows the flow of each page and how each page is interrelated.
6. How to beat the labor crunch?
Hire skilled programmers, designers and marketers online on an outsourced basis. The biggest platforms are Upwork (formerly oDesk), Elance and Freelancer. One word of caution though: be aware that if you pay peanuts you may get monkeys.
Try East European programmers instead of cheap offers from India. While there are certainly many great developers coming from India, and this is not meant negatively in anyway, it is a much higher hit and miss approach then hiring a medium priced programmer from Eastern Europe or the US. Make sure you check their working history thoroughly and test them with minor projects before you commit for a bigger project. Double check portfolios as well. Search for previous work arrangements and even call up former clients.
7. Use great tools for your start-up business
While there are literally dozens of great tools out there (from A like Asana to Z like Zero) that help you to make better sense of traffic that is coming to your website, organize your team or make better marketing decisions (among a trillion other things), one word of advice: there a many business platforms which lock you into a multi-service system.
They will promise total freedom and ease of integration between apps, and while this may be suitable for some business models, it remains a lock in. For many founders a bummer. Rather than get locked in into one platform or system, which makes changes in the future more difficult, many successful founders prefer to use open source software and freelance services to get the job done.
8. How to finance your start-up idea?
While leveraging on family and friends for the initial phase of your start-up - perhaps for creating a prototype - starting up a tech business may need a considerable amount of money. The good news is that it has never been easier, since platforms like Kickstarter.com, Indiegogo.com and other crowd funding platforms offer many ways of funding your project.
How do they work? The concept is simple – you post your project to a large group of site users, or "potential investors", and they will fund your project with money if they are interested in the project. You can start a crowd funding exercise for free as you will only be charged when your project has raised some funds or the full amount. There’s nothing to lose and this is great for publicity.
Alternatively, you might be able to get help from a government-backed support scheme if you need some initial funding to test and develop your business idea. You may want to check out http://www.spring.gov.sg for detailed information.
Another option would be to contact business angels (wealthy individuals who invest in start-up businesses) and venture capitalists from companies that invest large sums of money in businesses that they think will grow quickly (known as private equity companies). Any outside investors will however own the company jointly with you and the other founders. They have a say in the running of the company, and are entitled to get a share of the profits, known as dividends. Whatever it takes for you and your idea to get financed, make sure you get legal advice before selling shares in your business.
While the 8 suggestion above are not a guarantee for success, they may help you to get your start-up business up and running the right way.
- Björn Robert Raschovsky, Online Marketing Consultant -