I’m not saying there is a 90% chance your startup will fail. Statistics give probability and averages, but they’re not meant to discourage you from bringing disruptive ideas to the table. So yes, 90% of startups fail. But starting a business is not necessarily a risky gamble for everyone. You can build on failures that these insights point toward. And while there is a lot of worry over “angel investors” and VC support, a lot of problems that startups face aren’t even directly tied to finance. Instead, a lot of the barriers are related to inconsistencies in their ideas and teams. So what are the issues that you need to keep an eye on? Here are a few important questions you should be seriously asking yourself if you’re building a startup:
1. Does anyone need your product?
Working on a community project, I was introduced to the design thinking methodology. It gives a framework to approach problems and find good solutions for them. The design thinking process has five non-linear stages: empathize, define, ideate, prototype, and test.
Empathizing with a problem is crucial, but many startups actually make the mistake of overlooking it. According to CB Insights, 42% of startups fail because they’re providing a solution to a problem that no one has. Most entrepreneurs are ready to have a solution at hand, without really researching who their solution caters to. Startup owners, while focusing on how good their product is, forget why customers need their products. For instance, let’s say you’re building a mobile app that helps you track your finances. You even have amazing features to sync shares in the stock market. But all your customer needs is a calculator with a to-do list.
In the design process, the next most crucial part is prototyping and testing. The process is not linear because the loop of adjusting your product according to your customers’ reaction keeps pivoting your business model. Your startup needs features that people want, not everything that you find interesting to develop. The best way to move forward on a startup is to develop your product and learn from what your customer needs.
2. Is your team right for your startup?
One-man group projects are destined to fail right from the start. Approximately 23% of startups fail because the team is insufficient. Many startups die before they even take off because they’re incapable of creating their prototype or minimum viable product (MVP). Sometimes, this could be the result of startups not having enough people on board or the team just isn’t getting along well.
It’s also critical to have different types of skill sets on board. A financial or technology officer may seem unnecessary at first, but trying to solve problems that aren’t in your expertise will take an extra amount of time and effort. Once you have a passionate team that knows what it’s doing, the long hours become may become a bit more bearable and success is more likely on the horizon.
Working with a discordant team is just as bad as working alone. So many startups lose opportunities because they simply cannot agree or work together. Even teammates who don’t share your passion may drag you down. The premature phase of a startup needs people who’re willing to put in the effort. A good team can figure out its dynamics, assign responsibilities clearly, and be accountable for its actions.
3. What else could go wrong?
Other reasons why startups fail are because they’ve either run out of cash, scaled prematurely, or don’t have enough knowledge or experience. Funded startups seem to face more money issues as compared to unfunded startups. Yes, pricing is a big challenge for most startups: You need to cover your expenses and also keep the price low enough to attract customers. Failing to set a good pricing policy caused around 18% of entrepreneurs to shut down their businesses.
But a lot of these are also business decisions. Growing your company before its destined can be detrimental. In fact, 70% of startups scale up too early. If the lifetime value of your customers doesn’t cover the cost of acquiring customers, you’re not ready to expand yet. Getting outcompeted, poor marketing, mistimed launches, bad pivoting, failed geographical expansion, legal challenges, and not benefitting from networks are some of the common business mistakes startup founders make.
The startup world is scary but the most successful companies today were disruptive ideas of the past. Building a company from scratch is no easy task; it needs a passion-driven spirit and an ability to shift perspective constantly. Good entrepreneurs don’t just have good ideas, they know what makes an idea work.
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