Some least discussed startup mistakes

The term startup is of recent origin. Earlier the founders or promoters of new businesses used to be called first-generation entrepreneurs. They were mostly called promoters and not founders. To put this in the correct perspective, all companies in the world, at least the first company or venture of every promoter, were of course startups. In that sense, Microsoft, Apple were all startups though they were not called so when they were found. In addition, startup funding was unknown in those days and was limited to conventional financing means like IPOs, commercial bank financing and other debt financings.

The emergence of the start-up ecosystem has been seeing two sides; one of success and another of failures in India and all over the world. A lot has been written and discussed on various mistakes that lead to startup failures viz. going alone, no, or improper planning, lack of focus, mediocre leadership, spending money recklessly, launching at the wrong time etc.

However, in this write-up, we would discuss few other reasons though they are not fully unrelated to what have been already discussed on different platforms. We would also restrict this discussion to the startup ecosystem in India.

With the advent of technology and the culture of ‘Make in India’, the number of Indian startups has risen sharply. This has been strengthened by continuous support from the Government and improvement in the ‘Ease of Doing Business index in the country. Start-Up India has established an ecosystem to encourage entrepreneurship and job creation for the country.

However, despite all these factors, it is estimated that 90 per cent of the Indian start-ups fail within five years of their inception as per a report by IBM Institute for Business Value and Oxford Economics.

The reasons for failure can be different depending on many factors like the type of industry, region the business target for business, the skills, attributes, and track record of founders among others.

We will broadly discuss three elements viz. Idea, Founders and Support Functions here.

The Idea: It all starts with an idea or the concept. The idea makes or breaks the startup. A bad idea is difficult to succeed though a good idea can fail too if managed badly. I have come across many startup enthusiasts trying to copy or clone other successful business ideas and/or business models. Such startups have all the inherent ingredients to fail miserably.

The fact is that bad ideas are quickly vetted and easily avoided by intelligent founders and brilliant investors. A good idea before it's time can be a deadly trap sucking pioneers resources and wasting time fertilizing the ground for settlers to come in later to flourish.

An idea to succeed must be original, authentic, and credible. Then only the founders who conceive the idea will be able to smell, breath and sleep the passion for the idea. Those who copy or clone others’ ideas will try to copy and misplace lots of things that go into the business plan. Before one starts working on the business plan, the idea has to be thought of, deliberated, researched well considering the feasibility of success with more focus on the pros in detail.

Founders: I have come across many startup founders who behave like fly-by-night operators. There are many who are foolish enough to think that dropouts make it big because people like Bill Gates, Steve Jobs did it. They contribute more to the failure rate because for them startup is an excuse not to complete their formal academic studies and instead to venture into something with patched-up business idea hoping that after few months investors will queue up to fund their business and can strike gold easily.

Needless to say that the above mentioned founders lack in skills, leadership qualities, domain knowledge or experience and these reasons are enough for a guaranteed failure. This is not to sound pessimistic but to alert those who have dreams to become an entrepreneur about the pitfalls lying ahead in accomplishing their dream.

Support Functions: Idea is the hero but founders assuming that once they have finalized a solid, viable idea, they can do everything under the sun by themselves is a costly mistake. That is why it was mentioned earlier that a good idea can fail too if the idea is not implemented thoughtfully.

I have seen many startup founders neglecting functions like #finance, #accounting, #HR, #IT etc. by trying to do all these functions themselves or outsource them to mediocre teams. These functions often called back-office or support functions are normally looked down upon as non-value adding functions.

There is no denying the fact that it will not be possible or practical to onboard senior resources before the 1st or 2nd series funding happen if it happens at all. These days, there are alternatives available to avail part-time or freelance services of any function during the initial stages. However, there is a tendency to avoid availing good services in functions like finance, HR as much as possible thinking that it would save money.

Any funding will not help unless money is managed well and judicially. It needs sufficient skills and experience to manage cash flow and investment. Add to it the need for legal, statutory, tax requirements which if not complied with in time can land the startups in a mess and also lead to losing benefits that startups are otherwise entitled to.

Most of the times, founders get the business plan and valuation done by consultants which are mostly unrealistic excel sheet plans. Those are theoretical workings and writings based on some unrealistic assumptions extrapolated using templates and copying the plans of other startups.

It is a prerequisite that someone who understands business and finance must work closely with the founders to understand the pulse of the idea and work on to put up a realistic plan. Those days are gone when you could mesmerize investors with hi-fi and glossy looking business plans without substance and research gone into it. At the end of the day, a business plan must be achievable.

Resource planning, mode of onboarding is an area that is critical for the sustenance and growth of any organization let alone startups. No company, at least after the 1st series of funding can neglect these functions if to survive.

#startups #entreprenuers #entreprenueurship #business #founders #startupideas #startupsmistakes #finance #tech