3 Focus Areas for a Successful Start-up
Given the statistics about how many start-up businesses fail it’s worth a review of what are the most important areas to focus on when considering starting up a new business.
According to Startup Genome, 90% of startups fail and they fail more or less equally across every industry. So, although it might be tempting to think that it’s a certain sort of business that is more likely to fail or businesses in a certain industry, the statistics simply don’t back up that notion. What failed startups do have in common though is the likelihood of them being poorly planned, poorly managed, and poorly researched.
Looking at the data available on business failures can help entrepreneurs avoid the common points of failure and be more likely to develop a successful startup. For instance, interesting research in the paper Skill vs. Luck in Entrepreneurship by Harvard Business School alumni reveals the following:
- First-time start-up founders have an 18% chance of success.
- Start-up founders who have failed previously have a 20% chance of success. Start-up founders who have succeeded previously have a 30% chance of success.
So, failing at a previous business will increase your chances of success next time around by 2%. But creating a successful business previously will increase your chances of success next time by 12%. Although failure is a positive learning experience, success is more likely to lead to more success which suggests more skill than luck is involved.
If we assume from this research that skill is more important than luck, just what are the skill sets that would-be entrepreneur should focus on for a greater chance of success?
Focus on reasons for success not causes of failure
By understanding how and why failure occurs, entrepreneurs can avoid it happening to them.
Managing the finances
Managing finances carefully can help a business, whatever its size, weather economic downturns in their industry. That means not burning through the initial round of seed funding with the assumption there will be more money forthcoming – either via increasing profits or new funding from investors. Careful budgeting is essential to accommodate startup costs, ongoing costs (premises, salaries, advertising, raw materials, production costs, etc.), and an emergency contingency fund.
Unfortunately, it’s all too common for startups to burn through the seed-funding cash on the assumption that more will be heading their way or on the assumption of large profits. There are numerous cases of excessive spending on large fancy headquarters when smaller premises with cheaper off-site storage would be more cost-effective. We’ve seen excessive spending on marketing campaigns that miss the point and don’t deliver on their promises. We’ve seen celebratory events at 5-star venues before the product or service has been proven profitable. Yes, of course, brand image is important for a new business and its product or service but that can be achieved with judicious use of the initial funding.
Understanding and analysing cashflow is also essential because good businesses, with good products, can fail simply because of a lack of healthy cashflow.
To get the new business on the right financial track – and keep it there – create a detailed budget with a contingency fund and keep a close eye on all spending – limiting it only to the essentials, where possible. There will be plenty of time and funds to celebrate when the company is successful.
Understanding the market
After mismanaging the finances, the second most common reason that startups do not become successful is because of poor market research that does not fully understand
consumers’ need for a new product or service. Or ignoring what the research indicates about the price point consumers are willing to pay.
A common cause of not fully understanding or taking on board the market research can be an unwillingness to accept the obvious because of the founder’s understandable passion for their idea. This unwillingness to accept that the need just isn’t there in the marketplace causes 35% of all startups to fail (according to CBInsights).
Understanding the market from the consumer perspective requires both detailed market research and an ability to be entirely objective – putting passion for the product or service to one side.
Finding the right people
Putting together the right team to drive a new business forward is vital to the success of a company. Yet one of the commonest reasons for failure is not having a team with the right experience, skill sets, and attitude. Remember that attitude is just as important as experience and skills because it is difficult to develop the right attitude in people – even in well-established organisations with well-trodden career development pathways. In a startup company, with all the added pressures that entails, it is practically impossible.
So, when recruiting a startup team focus on the attitude of potential candidates as a priority. Are they enthused by the new product and willing to go the extra mile for the business? Are they full of ideas that could help the company grow and do they use their initiative? These are just some of the traits to look out for in addition to skills and experience.
Being able to make the right key hires at the right time in the business can avoid a painful downfall. It’s true that this isn’t always easy and might require determination to get it right but then determination should be part of every founder’s makeup. And if you’ve hired the wrong person don’t delay in replacing them as soon as possible with someone more suitable. No startup can afford – financially or metaphorically – to support people who are not useful or productive. They can negatively impact the morale and enthusiasm of everyone else.
Equally, if you’ve hired the right person don’t delay in letting them know – and showing them – how much they are valued and appreciated to ensure you keep them.
There are, of course, other reasons that startups do not become a success: poorly designed marketing campaigns that fail to identify or reach the right audience; legal or regulatory changes outside the control of the founder, or technological changes that make a product obsolete. Nevertheless, if entrepreneurs prioritise these 3 aspects of starting a business: Finances, Market Research, and People then they can dramatically improve their chances of
getting their business up and running successfully.
Some industries are riskier by nature, such as information technology for instance, but equally entering a growing sector of this industry such as cyber security or AI could mitigate the risks of failure, especially since these growing sectors are popular with investors. But
whatever the industry, whether it’s retail, construction, information technology, services, or education, focusing on the finances, market research, and the people will improve the chances of success.
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