Written by Jabiha Razi
You grew up sharing your daily status on Facebook, spending countless vacations on Airbnb and purchasing every must-have gadget on Amazon. You consider yourself the gifted generation living at the cusp of the fifth industrial revolution. You are gifted because technology is creating possibilities for you unlike ever before.
Gone is the cob-webbed era when economies depended on standardized products, localized markets, inefficient distribution channels, and ill-informed consumers. Today, you can sit in a garage and devise a disruptive idea to challenge and revamp decades-old business models.
You may have the lowest-ever entry barriers in any industry and the potential to treat the whole world as your market. The gains are a windfall. You succumb to temptation and present your most fabulous business idea to the world. This idea has appealed to you since you interacted with the connected world. An idea that has convinced you it will be the next most significant cult in the world. You commit and jump in. Like millions of other dreaming founders, you fall hard and fail.
Welcome to the fast and glitzy world of start-ups where, according to failory.com, the probability of failure is a bittersweet 90%, and even start-ups with a few rounds of funding are uninsulated.
To some extent, the media contributes to this unstoppable herd mentality urge to create start-ups by overexposing the adrenaline-pumping success stories of a few unicorns. However, the truth is, like other businesses, start-ups have to face challenges and uncertainties, at times at the speed of light.
Every start-up has its own unique set of problems. However, a post-mortem of over a hundred start-ups has found specific common failure patterns. Below are some of the most common challenges that your start-up may experience. By no means is this an exhaustive list. However, the better prepared you are to face these challenges, the higher the probability of survival for your start-up.
Need Assessment:
Most start-ups begin with a novel idea, a dream to conquer the world. You create a unique feature or product that no one has ever imagined. The reality check is that best-engineered products do not have the highest probability of winning. A Product that best fulfils your customers’ needs has the highest potential to succeed and perpetuate. Remember: Needs are perpetual, unlike wants. Focus on needs, not whimsical desires, for the long-term success of your start-up.
According to Abraham Maslow, an early American psychologist, you can classify human needs in a hierarchy. The fundamental level is the need for food, water, and shelter, followed by safety, love and belonging, esteem and self-actualization.
According to cbinsights.com, 42% of start-ups fail because the market does not need their product. You have to be sure which need/problem your product can fulfil satisfactorily and then build your business around it.
Vision:
Closely related to need assessment is the overall vision for your business. Perception dictates why your business exists in the first place. Like most start-ups, you begin your journey excitedly with a single classic out-of-this-world offering and consider it the beginning and end of the whole game. You soon find out you have reached the end of the game when your product no longer remains relevant or differentiated.
Your product is one of the tools to fulfil your vision. You have to remain faithful to your idea, not just a single product. Don’t cringe if times demand improvisations to your core product, point at bringing out new products or ask you to move strategically into other fields to follow your vision. You have to make these decisions with an open heart and mind. You must be indifferent and relentless so your start-up remains relevant and differentiated for years.
Capital Issues:
According to the analysis, as mentioned above, 29% of start-ups ran out of funds and had to shut down. You begin with self-funding or receive funds from family and friends. But to grow, you have to have constant money in the pipeline. In the early stages, you do not have the luxury to generate sizable revenue streams to scale. You scramble for outside funding when you are sitting on the last month or two supply of cash.
You should start finding angel investors, crowdsources or venture capitalists well before you start facing a cash crunch; otherwise, the gap in funding will choke your start-up to death.
Management Issues:
Start-ups face multidimensional challenges. On the one hand, you are still testing your minimum viable product and trying to achieve a good market fit. On the other, you are constantly testing ways to make exponential returns. We cannot accomplish this without sound and cohesive management. You would often encounter teams with diverse perspectives on product development, strategy, business processes and day-to-day management.
Furthermore, your culture will dictate how we can resolve such issues. You may find yourself in constant chaos or disharmony as a result. It is best to keep lines of communication open and agile to meet internal and external challenges thrown at you. Be transparent, honest, impartial, and respectful. You should outline job descriptions and the scope of decision-making, even if it is a flat organization.
Building Traction & Scale:
Once you have diligently crafted your minimum viable product, you want to build a customer base fast. The better your product-market fit, the easier it is to amass long-term customers. However, you must carefully analyze the return yields for the channels you want to use to build this base. Be data-driven. Focus on two to three best-yielding channels that blend well with your team’s strengths and business model. Once you start reaching a saturation level, move on to other channels.
Competitors:
You must bring your offering to the market to test drive your idea. There is always a chance a lurking competitor might mimic and take over your idea (or counter it) and scale faster, especially if it has more funds. A good strategy is to stagger the introduction of your offerings over time to outwit a “me too” competitor.
Take Help From Mentors:
As a start-up founder, you may have excellent skills and experience to steer one part of the business: technology. Still, you soon realize you are skill or experience-deficient in other areas like marketing or accounting. If you don’t fill this gap fast, you soon reach a dead-end or make decisions detrimental to the growth of your business.
One way to reduce this risk is to work with mentors. Find a mentor at your earliest. Mentors generally have a well-rounded experience of various scenarios and stages a business goes through. In other words, they have an edge in making wiser decisions. Not only that, they can help you build a network to fill skill gaps and also introduce you to new sources of funding.
Dream big. Humans rule the earth because they can dream. But dream with your eyes and mind open. Learn from your mistakes and the mistakes of others. Success is elusive the first time, but failure makes you wiser. Who knows, your next journey might transform your start-up into a unicorn.