How to Build a Successful Start-up?
Mergers & Acquisitions,
I know doing a Startup these days is considered socially “Sexy”. The disclaimer here is “Most of the things you knew about doing a Startup is Wrong!” And this is the single-most important reason why most Entrepreneurs end up failing or remain stealth for years waiting for funding. The reality is that most ideas are easy to think of just like a pimple in the middle of your forehead. They simply, just, don’t count.
The moment one gets an idea, you would do some enquiry. And after all that, you have a handful of rumors and a bucket of spin. The enquiry is almost like you want your girlfriend to whisper dirty things in your ears. What happened to “Whatchamacallit.com” is anyone’s guess. The truth is it fails because of the same reasons so many other Startups fail. It is indeed surprising sometimes that there are some special people who find exceptional ways to kill their Business. However, majority of the Startups fail in far more mundane ways.
Let’s look at the hypothesis of this first generation Entrepreneur –
A 34 YO, professional with exceptional credentials has a One Killer Product Idea (calls his “Passion”). He conducts Market Research (always looks absolutely and flawlessly amazing). So he writes a Glorious Business Plan which results in Funding and he “Starts” building the Startup. Thanks to the Funding, he makes headlines & gives Keynote Speeches. But he SLIPPED UP!
SO WHAT WENT WRONG? GUESSES?
There are exactly seven things that went wrong, either most or all of them.
The plan is based on what you think the USER wants. Or of course, your girlfriend still thinks it is “Cool”. First find out, what they like to do. Ask a Real Customer! Don’t tell your users how they should Act, it usually backfires!
It is very easy to get carried away for any sane human. With too many Entrepreneurs these days, it is indeed a fact that they are too much in love with the TECH! Almost to the extent, “Wouldn’t it be cool, if we let them do a video call with the dead?” It is like building an Elephant, but you still haven’t tested any of it. The simplest thing to do is to keep it simple and to the Core. The thumb-rule is to always “Market Test” before going wild with your second wife! A lot of Entrepreneurs bunch too slowly. It is a fact that if you are building an Elephant, you will keep holding back until everything is “Perfect”! But, it will be never be fully ready and tested. Also, since we are talking about building an elephant, you will have a never ending “Funding” problem. The most dangerous risk here is that competition will hit the market with a Good Basic Solution. The sane way, is to Go-to-Market with a Minimum Viable Product and then build the “Functions, Features and Jazz” as the user demands warrants it. Isn’t it more logical? Remember, more Startups fail due to a lack of customers and not due to a failure of product development.
The next reason is on the “Jokes” list. The sales strategy was to acquire 1% Market Share. Hey! This is not a Sales Strategy. It is only a way of making your excel sheets look linear and ideal, basically, unreal and drastically over-estimated sales figures (you are still thinking “even a bad product would get 1% Market Share, so for me it is simply conservative”). So if you are chasing a Billion Dollar market, you are thinking, Ten Million is a walk in the park. Instead, answer tougher questions like Who will be my first few customers, How will I reach them, What will it take to CLOSE A SALE, How many Sales people do I need, etc. And then based on this capability, you should be able to project a more real Sales Forecast. Bottoms-up is the only real “Way”.
Another one on the “Jokes” list is – “My product has no Competition!”. One, even if you are chasing a very small market, there is competition. Maybe not feature to feature on comparison, but there is Competition. Two mitigation acts to go around this one. One, make sure you are chasing a Big Market. Two, make sure you know even the smaller indirect competitor extremely well. If you don’t know the players, how will you play the game? Forget about Winning at it! The next reason is a rational one. Basic Copycat. Launching an Internationally working business model; LOCALLY. Sure they have been launched successfully. But usually only if you are the first one to do it locally! Be “Different”, not “Same but Better”. Being a Copycat in a lousy market just because you see the current player making tons of money is a sure recipe to BURN CASH & STAY SMALL.
The last and a very critical reason is something we all have heard about. Burning too much Cash, too Fast. A lot of Entrepreneurs tend to ramp up costs in the hope to see that “Projected” Revenue. However, these Excel sheets are known to be notorious and spineless. They never stand the Customer Contact. The better way and the more rational way is to Go-to-Market fast with a basic product and generate revenue while tracking your conversion metrics. ONLY when the Conversion Metric tells you that you are getting it RIGHT, you should grow your Spend.
These are some of the most crucial aspects due to which most Startups have failed. And of course, the riskiest of all is “TO NOT START AT ALL”. Now after scaring you so much I owe you one glass of red wine and an answer to “How to get rich by doing a Startup?”
“JUST AVOID DYING, MAN! YOU WILL GET RICH!”
Finally, without the intent of discouraging Startups and killing my own business, Entrepreneurship is not chicken’s play. It is generally for those who have the courage to fail in the eyes of the society while remaining mentally strong and balanced. Because, if you fail (which you might in 1 out of 2 cases at least, even your wife will say, “I told you!”)
I thank you for your time to read this boring text so patiently. And as a token of my appreciation, I will tell you a small secret. “There are 2 ways to avoid dying – Make Money OR Take Money!” So, keep tuned for the follow on paper on “Which one is better? Or is there a better one at all? And how it all really works?”
Gaurav Shah - Managing Partner
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