Thursday, July 13, 2006

Why startups often fail?

From past few months, I had been busy with work and households. Today, somehow I managed to write this -

Why startups often fail?

I have been working with a startup from last 2 years and it takes guts (ofcourse with perseverance, dedication, hardwork, good idea and the baap of all - the investor) to run a startup. That too, one involving software at the time when the salary standards in India are booming and you have limited cash in hand.
There are a number of reasons why startups may fail -

1. the product/service you are offering is not useful. Ofcourse, you should have not come long way creating the product or service. But if you justified the idea and had conviction and went ahead to develop the product or service only to find at the end that your assessment was wrong. Or in other words, that you could not sell it!
Yes, selling matters. Whatever be the product/service, if you know how to sell it, then go for it. That’s the first and foremost thing I guess. A startup fails if it doesn’t know how to sell itself. A very good example is - the sales team trying to sell the product not yet released inspite of selling the available products of company. I may be wrong, but as I see it from business point of view - why to propagate about the product that’s in pipeline when you should sell the ready products. You are losing two things in such a case - 1. a prospective customer who could have bought the available product
2. Selling ideas and not products!

2. Knowing how to sell is not enough in the long run. You can sell a number of units in the first go. But, the company will sustain itself in the long run only if it has a quality product in hand.
Having a good sales team is a prerequisite. You may not have a good product. But atleast you wont face the agony of not being able to sell a perfect product. There are many good examples where companies have failed NOT because of what they were selling but how they were selling.

3. Now, you have good HOW and WHAT, but still a startup can fail. How? You don’t have a good
customer service. After you sell the product, the company doesn’t have a post - sales department for handling customers. Angry/dissatisfied customers can ruin your brand image and at times cost you a lot lot more than you ever imagined - ultimately collapsing the company.
The first three are very basic - HOW to sell, WHAT to sell and AFTER SALES.
Another crucial factor is WHEN You SELL? i.e. whether you are able to make what you want to sell at the right time.

4. Startups can fail if takes too long to make the product generally available. Timing is also important. If a product is in engineering stage too long, it demoralises the engineers, lessens confidence in the company i.e. it affects the attitude and overall environment in the company. Even if the company has lot of liquid, but if it takes too much time to finalise the product features, or the features are changing every two months - it gives a very bad picture of the market assessment team and infuses frustration.

Second factor is if there are too many competitors in the market and they sell the same thing you intend to sell. That might validate the market at the first place. But fact is they are eating your market share, they get recognition first in the market, they become the pioneers in the market. Its like you might have started running first, but who finishes first is the winner.

If you think of a startup as your life - you can easliy relate these as -
The product or service of the goals of your life. For eg. Achieving good marks in your exam.
You work hard to achieve your goal. So studying hard is not the only thing - studying right and at the right time is more important. If study for Algebra today for a history exam tomorrow, how can one expect to get good marks in civics?

©Sweta Gupta


Manish said...

and overall what matter is what answers u write in that paper ...u might have read rt, read hard but wrote wrong then nothing can save u :)
btw its gud

mayuresh said...

Good article. Looks like you are making good experience out of your stay in start-up :) way to go business bazzigar :)

There are various category of start-ups, one that focus on servicing, one that focus on products - again market could be end users or vendors/service providers, one that focuses on IP (prototyping the IP and selling it to another company)

While you correctly pointed out some of the reasons why a category of start-ups fail, I feel it all boils down to how good a business plan you have and how well you execute.

Some of the key points for making a business plan is:
-> What problem or need of the market you are solving
-> What are your projected customers
-> how your product is going to address the problem and how much will your customers pay for that
-> how much will it cost to build the product
-> Who are/will be your competitors and how will ou beat them
-> How big is the payoff and when will it happen
-> MOST IMPORTANTLY timing, is your product too early to the market or will it be just another one in the crowd.

If you have the solid plan AND most IMPORTANT a good team to execute the plan, everything should fall in place after all having a good marketing team is the part of having a good management team