Why so many firms fail despite being the product of some extremely great ideas is one of the mysteries of the startup world.
Currently, a key business model that is advancing Startups need to do six things in order to survive the global economic development driven by innovation. One of the mysteries of the startup sector is why so many businesses fail despite being the product of some incredibly innovative ideas. The usual suspects or culprits, such as high capital investment, high taxes, poor sales uptake, low scale-up opportunities, competitive tech-led alternatives, complex or uncertain regulatory environments, competitors driving a price war that distorts the market, have all been mentioned and written about extensively. All of these things are true. The omnipresent metaphorical gang of VUCA (Volatile, Uncertain, Complex, and Ambiguous) and/or BANI (Brittle, Anxious, Nonlinear, and Incomprehensible) includes all of the aforementioned suspects or offenders.
However, despite being surrounded by the two gangs of enemies, we observe that a small number of startup businesses not only manage to survive and consistently produce returns for shareholders, but some also manage to make significant performance improvements that lead to the production of exceptionally healthy profits.
Essentials for Survival
What can we learn from the successes of a select few and the failures of many, then, to employ as a defense mechanism in the event that we are beaten by the gang? Although there are many lessons to be learned and mistakes to avoid that could fill an entire book, in this post I will focus on the top six lessons that I have learned from experience and observation.
Ensure capital flow: Almost everywhere in the globe, startup failures have been attributed mostly to a lack of sufficient capital. Frequently, either not enough funding is available to start a business or there is a steady supply of capital when it is most needed. Additionally, there almost definitely is not enough money to cover early-year losses. My humbling recommendation to anyone trying to launch (or turnaround) a fledgling business is to increase any capital projections provided by consultants and pitch professionals by at least three times, as well as the time needed to reach break-even.
The promoter typically provides funding adequacy for new businesses. As a result, having a solid reserve of promoters with enough funding also assures that the organization is under stable and consistent control rather than one that is continually shifting hands in quest of funding. Notably, according to what I have learned about the startup environment, even when a startup has a single set of owners, the ongoing need to raise money to cover losses or expand the business can make promoters impatient. As a result, investing money where it will produce returns is also a crucial success aspect.
scalability up: My understanding of the startup industry has led me to the resolute conclusion that, despite the comfort that comes from “being in better control of things,” scalability is a crucial component of any startup’s success and sustainability. Scale businesses include startups. They must expand swiftly in terms of product offers, network coverage, technology, and the like. Scale provides protection against the storm of sporadic failure. It provides the capacity to manage concept experimentation. A larger company has more negotiating power than a smaller one when negotiating with suppliers and other partners. Scale gives you the power to negotiate.
The ability to generate enough revenue and cash flows to cover both fixed and variable costs and produce a profit ultimately depends on scale. And last, scale is what draws greater talent.
The majority of the time, incrementalism fails when it comes to scale. huge ideas and huge wagers are required. For instance, the 2004 announcement of an order for 100 brand-new Airbus A320 aircraft by Indigo, a new private airline based in India. Many in the industry believed they were too wacky to be taken seriously for an Indian market at the time. However, because of their superior starting position, they were able to outrun or pass rivals while they battled.
Furthermore, the scale must be accompanied by a sense of some extent of diversification in terms of revenue channels, it must be manageable and it must consider the ability to deploy capital profitably.
Execute the mission: It is crucial for the startup to have total clarity regarding its purpose and aim from the very beginning. Whether it be on the cost front, through product/technology distinction, or both, it needs to clearly identify the sources of competitive advantage in its business strategy and business plan. Making a go-to-market plan and turning those advantages into tangible attributes is the next stage. The execution of the purpose-driven task must then be pursued with tenacity. The branding and advertising must consistently and consistently highlight the same qualities. Any departure from the mission or enhancements must be supported by convincing logic.
Many firms throughout the world have had successful beginnings, but over time, many end up becoming overambitious, losing sight of their primary purpose and objective, as well as their core expertise, and ultimately losing the plot. Recall Beepi? A promising used automobile startup from California earned close to $150 million, but it failed after only around three years owing to poor execution.
According to my views, while a startup can benefit from the first-mover advantage up to a certain point, new entrants must consider tactics and sources of competitive advantages that are not just a carbon duplicate of the market leader. Unless the market leader himself loses focus and generates opportunity, it is difficult to compete with the market leaders on their own turf.
Put people first: Just as “catches win matches” in cricket, so too do people in startups contribute to success. In my experience, no great business has ever been founded by a single person. Success in an organization is therefore built on the “people-first” mindset and actions. That means employing competent candidates who are better than them, according to the startup’s founder, promoter, and CEO. That entails training and enabling others, as well as surrounding themselves with those who actually possess the knowledge they may be lacking. That also entails showing respect for people even when firing them. The entrepreneur, promoter, or CEO must finally change their attention from the product to the people in order to prioritize them. Facebook is a fantastic illustration of onboarding the right individuals at the appropriate time. Early on, Mark Zuckerberg decided to hire Sheryl Sandberg. Given their stark differences in personality, it was a difficult decision that required a great deal of bravery. However, the remarkable success of Facebook was directly due to this decision.
Right-brained focus Each and every dollar does matter in a startup. Saving money results in earning money. In order to achieve the same, it is critical to continually monitor what affects the cost and revenue sides. Spending a lot of effort on cost and revenue initiatives that do not actually have a big impact or pursuing supplementary revenue streams that rarely make a difference diverts attention from the cost and revenue drivers that actually matter.
As a result, it makes it harder for the company to concentrate on generating core revenue. Similar to the revenue side, a constant focus on cutting expenses pays off handsomely.
In the majority of companies, labor expenses make up a sizable amount of the overall cost. The workforce must be optimized and rationalized as a result. I have seen that a workforce with fewer, decently compensated, and more motivated workers performs better than one with more employees and lower pay. The workforce must be paid no matter what, even in difficult times. At the end of the day, employees are not a cost center; rather, they are the ones that drive revenue and propel the startup ship forward.
Finally, the ability of the leadership is what matters most in a startup. Additionally, the founders and promoters must allow competent management enough room to operate. A capable leader gives the startup ship control and points it in the proper directions. A company’s culture develops from the top down, as numerous renowned business leaders have persuasively illustrated. To be able to gauge the mood of the populace and comprehend the reality on the ground, leaders must regularly leave their desks and travel to the frontlines without making any announcements. Direct consumer feedback is necessary for them to understand the customer’s viewpoint. Instead of simply following the rules, they must lead by demonstrating beliefs and ideals.
They effectively communicate teamwork, honesty of purpose, and motivation to the workforce by doing this, which also helps to foster loyalty and a sense of shared purpose. For innovation, transformation, the delivery of excellence, and exceptional company performance—all cultural traits for which startups are renowned—people need to look forward to reporting to work each day.
