Do Your Homework Right before Building Your Start Up

It’s always great to maintain positive attitude toward creating your dream start-up firm, and transform your years of planning and goals into reality. However, there are common challenges that most start-ups face in their course to penetrate the market and achieve business excellence. Knowing about pit-falls and being prepared for it provides great tactical advantage before launching your firm in the marketplace. 

This session explores common reasons for start-up failures that provide ideal learning opportunities to overcome start up hiccups by formulating a counter plan.

Unexpected Market Challenges 

One of the major reasons behind unexpected and definitely unwanted start up shut down is lack of adequate market opportunity for its potential products or services. Analyzing market demand and acceptance is one uphill task as there is no conclusive evidence that guarantees market success for a particular product or service. However, emerging entrepreneurs can assess potential symptoms during product/service development stage to predict outcomes.

Following symptoms are the common ones behind poor market acceptance: 

• No compelling value proposition to motivate customers to commit to purchasing
• Lack of compelling event to differentiate a product/service from other available alternatives
• People finding a product/service “nice to have” rather than “must have”
• Inappropriate or unsuitable timing to launch a product/service. In thousands on instances, a product/service might have appealing value proposition; however, it may be ahead of its target market by certain time period or it is not ready for existing market gap, making it unsuitable to absorb at a given time
• Total size of the target audience and it’s spending capacity is not adequate enough to match with the predicted sales volume 

Inappropriate Business Model 

Maintaining an optimistic business approach is the must have for any start-up firm; however, one must not remain too optimistic by ignoring the role of developing an appropriate business model in advance. Unfortunately, mere creating an attractive website, multiple interaction channels, interactive social media profiles, or attractive product/service design is not sufficient; it might work for few customers, but not for the whole target segment. 

Most importantly, the cost of customer acquisition must not be neglected under any circumstances. In many instances, startups find themselves in the worst position when their customer acquisition cost turns out to be higher than the lifetime customer value. Even in the most promising business plans/models this cost often gets minimal attention; when customer acquisition cost gets higher than the lifetime value, a business model becomes highly inappropriate.  

As an entrepreneur, one must develop business model that provides scalable ways to acquire target audiences. Moreover, the model must have potential to monetize target audiences for optimum results.

Product Issues 

Getting a product/service right from the first attempt is quite challenging itself, especially for startups. Due to lack of practical market experience, startups often fail in aligning their products/services as per market conditions or existing requirements. Also in many instances, a product/service requires comprehensive re-structuring in order to adapt to evolving market conditions or to mere survive.    

However, if a product/service fails miserably in satisfying market demands, it’s not the end. There are thousands of examples in which a product/service becomes market hit after few revisions. Entrepreneurs must remain hungry for identifying market trends, and the product development stage must take into consideration critical market trends to fit just right into it.

Dysfunctional Management 

A management team that is incapable of delivering competitive advantage through standardization, futuristic planning and differentiation is one of the prevalent reasons for startup failure. A motivated and inspiring management team lays the foundation for the success of a startup. 

A startup strongly requires a management team that is creative and visionary. The team must know how to differentiate its firm from the rest of the lot; it must inspire standardization across business operations, and must remain focused on its futuristic goals. Take time to analyze and select each member of your management team that assists in creating robust functional architecture.  

Cash Cushion 

The great recession of 2008 taught one valuable lesson that bad things can happen in an instance without any warning bells: the filing of a lawsuit, loss of valuable employees as well as customers, entry of a potential competitor and so on. Unexpected change in a business environment can put great stress on available finance and fund raising capacity of a firm. The recession exposed the cynical nature of startups, and made them aware of the importance of having a cash cushion. 

An enterprise sets performance milestones based on its predictive planning, and when this planning fails to achieve desired milestones frequently, an enterprise puts itself at the risk of running out of cash. 

A CEO must have strong understanding on when to hit an accelerator, and when to put a break in order to manage cash flow optimally. During the initial product/service developmental stage, it is wise to accelerate the pedal lightly to get the time to gauge market acceptance and other product/service related parameters. A smart CEO always knows how to switch the accelerator mode after gauging market satiation intuitively.