The startup success rate is less than 10% this is probably the one stat that every since Entrepreneur knows. However, most of the entrepreneurs think that once a startup raises funding thing become smoother and their success is inevitable. I studied these 10 successful startups who raised funding and even got amazing traction from the start and yet they failed. There were 5 traits that each one of these startups shared, not sequentially but somewhere between their run.
The 10 Startups are :
- Solyndra raised $1.2 Billion
- Arrivo raised $1 Billion
- Jawbone raised $929.9 Million
- The Verge raised $305 Million
- Beepi raised $149 Million
- Juicerro raised $118.5 Million
- Yik Yak raised $73.5 Million
- Shyp raised $62.1 Million
- PepperTap raised $51.2 Million
- Doppler Labs raised $51.1 Million
And this is what I found. I will go in the sequential order to the importance and the magnitude of the effect it has
Startup is like a Marriage proposal it is best when it is well planned:
Imagine you are going to propose to someone or someone is planning to propose you and in the complete day goes as a disaster. Doesn’t make up as good story to tell your kids, does it?
In the same manner before you even decide the name of your startup you have to plan the next 2 years for your startup. You need to be crystal clear on the road map and everything in between. Ofcourse you won’t be accurate but atleast you will be close and aware which will help you learn better.
Most of the startups do a lot of theoretical research which leads them to untested hopes and assumptions. The real test begins once you start your work, If these assumptions stand then it is a fairy tale story if they fail, which is the case in 90% scenarios then you enter into serious trouble.
Like we prepare for our exams, we need to do the same preparation for our startup. MOCKUP TEST. Before you enter full fledged in to your startup try to do the same business as a part time or after office hours.
Practicality holds more important than the theory. You need to find a balance of both before you go ahead. Here are a few questions that these startups didn’t answer before starting:
- How to launch,
- Where to get the initial traction,
- How to convince your first client,
- How to deliver the service that you promised
- What is your operational cost,
- How much should you charge
- How much savings will you need? (Worst case scenarios)
Money to startup is like petrol to a bike. It is not the most important thing but it is damn important.
Improper Cost Calculation is by far the most common reason for all the failed startups around the globe. There are many founders who completely overlook the cost calculation matrix while the smarter ones highly under-calculate the expenses. In simple terms Money = Business, however, the reverse may not be true.
In a startup, there are many more expenses than what meets the eye. Due to lack of experience or guidance founders often miss many expenses which a startup inculcates. As a result, all the follow-up calculations prove out to be ineffective and the startups end up missing the targets by a huge margin.
Practically it is not possible to come up with a perfect number for you expenses as there are many variables and many other unexpected expenses. Hence the idea is to be as close as possible and unearth as many possible expenses as possible. Some of the most missed expenses are:
- Founder’s Salary, company’s salary, Employee’s Salary and your profit they are all separate entities,
- Employee Birthday celebrations, Festive celebrations, etc, are all your monthly costs,
- Meeting with clients
- Travel and food expenses
- Daily tea and coffee expenses
- Rent, electricity, Office cleaning, etc
Expanding a startup is like a ball rolling downhill; It won’t take long before it runs out of control.
Unless you keep a check on the ball you may soon lose control over it. Expanding is something that is always there in the TO-DO list of the founders. Every day they contribute some effort to make sure they are reaching out to new potential customers and expanding their reach.
While trying to expand we make a lot of decisions and workload on everyone in the team increases which creates pressure. Each market and each customer is unique in itself and if the founder expands too rapidly, they have too many decisions and too much data to analyze in a very small time. Resulting is decisions made in haste and unplanned growth, which results in mismanagement and loss of many and quality of service. Eventually, the customers will take notice and stop using the company’s services/products. Hence showing a great initial response, followed by operations being shut down completely within months.
Good management is a very crucial part of keeping any business successfully operational. To set up good management you need 3 things Right People for Delegation of the task, Time to Absorb Market Trend, and a Pre Planned Road Map. Some of the executable strategies for rapid growth are:
- Minimizing surprise factors by studying the new market,
- Discovering the key roles and people capable to handle those roles,
- Breaking growth in measurable matrixes,
- Defining a process to keep a track on the matrixes,
- Frequent communication and constant support to the team
- Last and probably the toughest, not being greedy, knowing when to slow down and say a NO.
Learn from Dominos and always deliver your “pizza” on time. Damn I miss my Free Pizzas.
It might come to you as a surprise but about 74% of projects miss their deadlines across the domains around the globe. Things are always easier said than done. In order to convert a lead or to kick-start the project, the companies often agree to the demands of the clients without ensuring if the company will be able to meet the client expectations and deliver on time.
Each client is new and their demands vary in some form from one another. For one reason or the other Sales people at times agree to things that may be out of scope or for lower prices. These decisions impact the product/services at the later stages which create a hostile environment for the client and company both. Clients launch plans are now seriously affected and the company is now starting to deplete their profits and sometimes even inculcate losses. Possible reasons for such a scenario are Unrealistic Sales target, lack of awareness/knowledge with the people closing the deals, improper management.
As a founder, you need to make sure a concrete process is put in place which ensures that appropriate features, cost, and the timeline are being assigned to each product/service. There are quite a few ways to do so.
- Commit X days to the client and give a target of X-30% to your team for finishing the task.
- Discover your expenses and make a custom formula to calculate the project cost,
- Make dependencies for signing the contract so that at least 1 more person validates the deliverables and timeline,
- Clearly tell the client about the limitations and challenges
- Keep everything documented and signed,
- Setting realistic Targets, in case of failure try to understand the reason,
You can’t charge for copper and deliver gold
Most of the startups/companies struggle to charge the right price for service/products. No 2 startups/companies delivering the same service/products could have the same cost. Cost depends upon a lot of factors like City, location, management, process, team etc.
However, clients have a habit of comparing your cost with the other vendors.
Clients compare your cost with other competitors and make you look bad for the rates you are charging. It can be tough to explain to them why you are charging them this higher/lower prices and the effort it takes to deliver the quality you offer.
Clients generally don’t have a problem paying you good money if they are sure about your services and quality of work. So all you need to do is win their trust. The best example is Apple’s iPhone, everyone knows that if manufacturing cost of an iPhone is $400 then it will be sold for $1200 in the market, yet customer stands in line and wait for days to get their hands on it.
- Prove your quality before taking client’s money, Free Demos
- Create a name in the market,
- Showcase your portfolio,
- Create processes to ease communication and tracking
- Keep transparency
- Not everyone can afford you so learn to let go,
- It is better to have 1 client at right cost rather than 3 clients with under margins
After studying the rise and Fall of these startup it became evident that your products and your services are always the backbone of your company while other things like Resource Management and cost calculation are the supporting pillars.
Here are some the most popular ways to estimate your cost and Finances
1) Create an excel sheet with the monthly cost for each employee,
2) Make a list of all the expenses and break it to monthly. Include salaries, tea, coffee, client meeting bills, office celebrations, everything.
3) Break down your service in working day (not Calendar),
4) Add markup to your base cost. (profit)
5) Profit, your salary, company’s salary, and your employee’s salaries, they all are different don’t mix it up with your markup
How to decide markup:
It depends on your experience and how well have you proved yourself in the market. Don’t be greedy. Don’t fill your personal bank from the company’s extra cash. This cash will help you sustain in bad days. Lastly, you won’t be perfect in calculation but the aim is to be closest. Let’s increase the startup success rate.
If money is the only thing that makes startup successful then none of these startups would have shut down. Hence focus on your delivery and commitments. Happy clients is the real reason of success irrespective of being funded or otherwise.