Thought Leadership

Image
Aman Khan
Why startups fail - and how to avoid

by Aman Khan, Diplomatic Council Startup Coach

137000 businesses give birth every day or 5 million per year. If we agree that 90% of them fail – 123000 fail every day. In the time you were reading up to here, 85 businesses were probably shut down. Forbes claims that Nine out of ten start-ups 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 very 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.

A study by EarlyaPad claims that the top three reasons for Start-ups failing are no market Need (42%) followed by Ran out of Cash (29%) followed up Not the right Team (23%). There is so much material available about Do and Don’ts, Rules and Musts, and Things to Watch for Start-up Entrepreneurs.

Situation in each Startup, Market, Product, Idea, Team can be unique however below are some common observations - what some people call AVOIDANCE TO THE HELL TRAP! – regards less of the phases; SEED, GROWTH or EXPANSION.

While some of the messages below may sound to be more relevant for the enterprises that are mature however many can be relevant for the companies in their early “crawling” phase.

Is the PRODUCT NEEDED in the targeted market?

Fortune reported the “top reason” that start-ups fail: “They make products no one wants.” A careful survey of failed start-ups determined that 42% of them identified the “lack of a market need for their product” as the single biggest reason for their failure.

Try to get hard facts as much as possible about the market you wish to pay. UNLESS you are one of those rare creators such as Mark Zuckerberg (Facebook) or Jefferey Skoll (Ebay) who have the vision to create a market need!

The RIGTH entrepreneur CEO does not ignore anything.

After their company folded, Dijiwan’s former digital marketing start-up based in Bordeaux, France wrote this:

“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’.

They had a great product. They had a strong team. They overlooked key aspects of business process and the “boring stuff.” The CEO thinks, “It’s my job to lead.” The CMO thinks, “It’s my job to market.” The lead developer thinks, “It’s my job to code.”

But a start-up can’t segment its responsibilities like that. Things are far more organic in a start-up, meaning that roles and responsibilities will overlap. Small things can turn into large things. Some of the most important components of a start-up are those pesky issues of business process, business model, and scalability.

Also, Start-up Founders are not always the best CEOs just like not every CEO can be Startup Entrepreneur: More people have realized that their "baby" might be better served by a different CEO. 

SURVIVING DURING CRISES – When Things are not going well.

Every start-up is formed of a team of people.

“Versatility” mindset is critical! There will be time when the wind blows against you. The team that is able to recover together, also possess the unique trait of harmoniously working together through tough times.

It is also noted that start-ups with co-founders have a higher success rate than companies with a single founder. Having a cofounder creates a partnership. There’s much more accountability, which helps the CEO to avoid some of the pitfalls of a single charismatic leader. Plus, a co-founder may have skills that perhaps you don’t have.

FOCUS ON delighting your FIRST Customers

FIRST (10, 20, 50 or 100) customers are one of your biggest assets, mentors and supporters. Take them seriously. Communicate with them, take their feedback seriously to enhance your offering if you can.

DO NOT UNDERESTIMATE CURRENT COMPETITION

Taking time to understand competition background, offering, approach, successes and failures is important. This can help improving the current offering.

IMPORTANCE of great MENTORS

Surrounding with great Mentors – not for receiving eco of ‘wishful’ thinking nor for turning the passion off – has been important for successful start-ups. Mentors are critical and therefore smart Start-up CEOs select them very intelligently; DIVERSITY of background,  skills and TRUST are the key words here. Some of these people may come out of the CEO’s network!

KISS PLAN: Keep it Short and Simple

Regardless of what the pitch (or message) is and who the audience are - Keep the story Short and Simple. The audience expect the presenter to be EXPERT in the idea. They do not want to understand each and every detail of complexity involved. They want to feel the passion, obsession, persistence and burning desire to succeed of a well thought and analysed idea!

This is no rocket-sign. PREPARE and PRACTICE are the key messages here.

SALES – The Backbone!

NO SUCCESS without true Sales expertise and resource!

The core team must possess real sales mind-set and channel expertise. Acquisition of these skills from outside can be an option if core team does not have these skills.

PLAY YOUR STRENGTHS!

Analyse and be play on your (and your team’s) Strengths! These are your BIGGEST Assets.

VALIDATE proof-of-concept – Test the market before BIG-BANG

Particularly in SEED phase, validation of Proof-of-concept - regardless how small, short or minor – PoC is important. Definition of the PoC and consistent Execution will be FULL of learning and FUN!