5 Things to Know Before Starting A Business

The rise of multiple startups in today’s business landscape has led many to believe that starting a business and growing it is an easy feat. That simply is not true. Almost 90% of startups fail and statistics indicate that almost 10% do not even make it past the first year. Having a golden idea and the initial adrenaline rush at the prospect of building a successful business is not enough to guarantee success.

So, what is? Let’s take a closer look.

No. 1 - Know Your Market

A new product or service may sound good on paper but if there is no significant market demand for it, it will not succeed. Your startup’s viability greatly depends on a strongly differentiated customer value proposition, factoring in an innovative offer, and the potential for it becoming increasingly valuable against the cost (including inconveniences) of customers switching from what they currently use. This means being aware of the competitive landscape of the business’s operational verticals. Knowledge of competitors’ market position will not only allow your team to build a better product—it will also help you establish your USP. Common errors include not fully recognizing a competitive product’s strengths and not creating a prototype that gets a real-world test.

No. 2 – Know the Resources at Your Disposal

The most vital resource is funds. The business’s founding team needs to know how much they will require to build the product, market it, and launch it, and then compare that requirement to their available funding.

Similarly, a broad set of stakeholders, including team members, strategic partners, and investors, play a critical role especially if the founders don't have extensive experience in the industry. To mitigate the risk of bad bedfellows, entrepreneurs need to build a deep understanding of the industry they're in and find partners that know how to navigate through it. Startups cannot do without key senior management. They’re need to lead strategy, determine org design, and manage culture. With so many moving pieces, rapid changes, and new people in the mix as businesses scale, the right leaders are critical for success.

No. 3 – Know Your Unit Economics

Entrepreneurs leading early-stage startups must focus on their unit economics, that is, the cash profit they earn from a typical transaction. They also must ensure that the lifetime value of a customer exceeds the cost to acquire a customer.

Looking at overall profitability or cash flows is not an indicator of whether a business will make money. Even if cash flows and profitability in the first few years are negative, investing in a venture is a good idea if the unit economics are positive. This is because when the business grows and scales past a certain point, these unit economics will translate into healthy profits and positive cash flows.

However, beware of growing too fast. The challenge here is that when you’re growing fast you’re reaching customers that are less interested than your early adopters. Therefore, at times, the new customers can be less valuable but cost more to acquire as they’re not as interested in your product. This makes growth less profitable.

It’s important to right-size spend to reach the milestones needed to raise the next round of capital. You might find yourself hiring like crazy, but great talent is hard to find, and new employees can be hard to train. You can go from having no processes to needing all sorts of systems. When all this happens at once or too quickly, the business can swiftly unravel.

No. 4 – Take Your Time

Abraham Lincoln once famously said, "If I only had an hour to chop down a tree, I would spend the first 45 minutes sharpening my axe." Customer discovery is equivalent to sharpening your axe in the start-up world. When you have a deep understanding of the problems your customers have, everything else (strategy, product, marketing) gets a bit easier.

If an entrepreneur jumps the gun and skips important steps like customer discovery and prototyping different solutions, they will have wasted months of work and if they have only raised a year or 18 months of capital, that can be deadly. Entrepreneurs are doers by nature and want to make things happen, but holding back that instinct to build/execute early on can prevent significant risks and costs down the line. Entrepreneurs should manage the speed and energy they have, and move fast when they can, but also take their time when they need to.

No. 5 – Have the Right Mindset

This can be absolutely crucial. You can turn the common advice you read in so many books, or you hear from so many experts, into no-fluff real-stuff behaviors when you face major challenges.

As a founder, the common advice is for you to be persistent and passionate. While that holds true most of the time, it can become a problem when you face challenging situations where persistence can turn into stubbornness and passion into overconfidence. Consider a strong yet agile mindset that empowers you to be aware of the signals and warnings around you, and be flexible to adapt and make hard calls when required.

Try and be open to a world of possibilities,  not be limited by conventional ideals, and embrace failure as a learning stepping stone, so as not to shy away from creativity, curiosity, and risk.

Knowing and understanding these five things before starting a business is key in improving the chances of success and ensuring that the time, energy, and resources dedicated towards the venture are not spent in vain. The good news is that these skills can be developed and nurtured over time.