"The market is extremely competitive, and there are plenty of reasons why your startup might go the way of the dodo." - techjury.net
Did you know that about 90% of new startups fail? According to the U.S. Bureau of Labor Statistics just a little more than half of all startups survive their fourth year, at time when the startup failure rate is about 44 percent. What leads to the fact that hundreds and even thousands of good business ideas do not meet success, and some of them sooner or later suffer defeat?
Actually there are too many reasons. Lets just look at top 10 causes of startups failure, provided by cbinsights.com.
So, WARNING - A good idea isn’t a guarantee of success.
Each startup is a complex process, which requires close attention at every stage. While preparing this material and exploring this issue, we saw hundreds of different startups tips. Most of them were incredibly trite. We think you have already heard all that "the dream is the most important" and "invest in yourself" stuff, so let's get down to the meat.
Tip #1 - Assess whether your business idea is unique
As they say - there is nothing new under the sun. That first and foremost regarding startups, as many business founders come up with smth already existing or their conceptions are very alike. In order not to waste time for reinventing the wheel, make sure your idea is fresh.
WARNING: Find out if you are the first one who thought about it.
One of the tools for achieving this goal is PROVED. To fulfill a test at this service, you can add an idea or a ready-made prototype, describing the problem and its solution. Pretty soon, not later than 24 hours, you will get feedback from testers, learn whether your solution is unique and suitable for target audience, the degree of problem’s severity, if it is worth sharing with other people, and if they are willing to pay for it.
To be honest it’s not so easy to find a good service or tool that checks if your startup concept is different. Here’s an idea for a business project and it’s completely free ;) You may thank us later.
Tip #2 - Break your market down into atoms
Market analysis is not just about capacity, dynamics, competitors or trends. Before you begin a serious research, just test your business idea with a model which answers your main question - “Is it worth it?” This will help you decide whether you should start and test your service or product. The Value Proposition Canvas by Peter Thomson is what you need. It is a simple tool that will help you to quickly clarify the essence of a business launch project and begin to act. Canvas questions allow the startup founder:
- put themselves into the buyer's shoes,
- probe their thoughts and feelings,
- understand how effective the product is, and what feelings the use of it causes,
- how product works,
- what pushes a person to buy the product,
- what customer hidden needs are,
- what rational reasons customer has for the purchase,
- why customer might be afraid to switch to your product,
- what people are using instead of your product at the moment.
WARNING: Study whether the market needs your product.
After you have checked your idea, you can start serious research on the market, competitors, and substitute products. We wish it were us who came up with this idea, but alas, this was Michael Porter. Good news is that Mr. Porter knows his stuff, as his 18 books and well-known theories on economics, business strategy, and social causes speak for themselves. Be aware that as many as 90% of mid and large companies in the US are analyzing markets, competitors and trends.
To create a competitive advantage in the market, use a full model of Porter five forces analysis (threat of new entrants, threat of substitutes, bargaining power of customers, bargaining power of suppliers, competitive rivalry) - otherwise you have a strong chance of being in the 80-90% of startups that didn’t succeed. Also it’s very important to define needs of your target audience, but you must also remember - quite often people simply don’t know what they want. They aren’t able to actually identify their needs and desires, so consider that not everything can be verified by theory. Now live with it:)
Tip #3 - Look for the right (not just any) financing
There are numerous financing options for startups, such as crowdsourcing, angels, and venture funds. It’s important to remember, though, that venture capitalists usually have strong expectations of high growth and profitability. But:
WARNING: up to 30% startup ownership should belong to investors, 70% - to founders.
At the Pre-Seed and Seed stages, it may be tempting to seek at least some funding. At this point, the perfect ratio of financing is when not more 30% of the business startup belongs to investors, and the other 70% remains with the founder.
Usually, the needed initial capital for startup development is much higher than for small and medium businesses, and the options of funding are also very different. Sources like business angels (29,0%), venture capital (26,3%) or crowdsourcing backers (18,1%) are more typical for startups (data by EU Startup Monitor report 2018).
Strategic investment is a vertical focus, no matter which sphere you represent. Such vertically oriented investors may have a good relationships with corporations. This means, they can give the startup founder investments and even a commercial contract. This way large corporation will learn about the technology and provide both capital and access to its huge sales channels. One of the possible ways of business financing is participation in the accelerator. Usually there startups get some financial support, which is enough to test several business hypotheses, create a minimal viable product and search for first customers. However, the main point of the financial assistance of the accelerator is that it helps the startup team to prepare for negotiations with potential investors. In addition, some accelerators present startups to investors who are potentially interested in the business idea or who are experts in the chosen market.
Tip #4 - Create client’s profile
So we aren’t exactly rediscovering America with this point, but it’s still impossible to overestimate the importance of knowing your clients. Next tip - create a detailed profile of your consumers, determining their age, social and financial status, habits, preferences, problems, maybe even try drawing their appearance. Make a portrait and hang it in the most prominent place in your office, after all, it was for them you started all this. Let your clients be your main focus. Oh, we just shed a tear as we wrote this, sounds like an ad campaign motto.:)
WARNING: Get to know your client so well that you can finish their sentences.
By the way, author of this tip, one of Y Combinator (top U.S. seed accelerator) co-founders Paul Graham, shared it with Brian Chesky and it actually helped him turn Airbnb into a huge company. Graham also said it is better to create something that 100 people will love than to create something that 1 million people will kind of like. Those who love a product can drive it to viral status.
Quite often, entrepreneurs make the mistake of trying to please everyone with their creations. Instead, find your niche, get to know your business customers well, get a sense of their needs, and do your best to create a product that helps solve their biggest issues. And as soon as make any changes or corrections to your project - look at the client’s profile on your desk.
Tip #5 - Do not spend a lot of time on the creation of first MVP
All you need is to heed Tip #2 so you can analyze the relevance and usefulness of your idea. Creation of the MVP (minimum viable product) is just a matter of implementing the business concept.
Do not spend a lot of time creating a prototype. The average duration of MVP is up to 12 months. The faster you make it, the less money you spend. At this stage forget about industrial design. After all, the task of the first prototype is to test the functionality, demand and performance of the idea. Ask your target audience to test it.
The number of iterations (beta testing cycles) will provide a better view of the improved version of your product for market.
WARNING: No theory can replace the feedback and comments of your target audience.
The more people see, touch and test your prototype, the more feedback you will get. And this is one of the most valuable points at this stage. Real reviews and constructive criticism will help to finalize your product before entering the market. Do not be surprised if there are several rounds of trial and error. The earlier you learn about necessary improvements, the better.
Therefore, start with MVP and then use Lean Startup (a set of short iterations). This is how all successful companies are created. Another reason to build a Minimum Viable Product is that investors are more likely to support your startup if you offer them a prototype. Go to them with something real, visible, and testable and already tested by your audience. After all, first MVP can be developed within a few months.
To enhance this tip, have a look at main advantages a development of MVP provides for investors and startups:
Tip #6 - A partner is a must. Don’t be a Lone Ranger.
How often are you confident about your ability to do everything by yourself? It’s great, that you feel like you can change the world, but alone you are doomed. You can be a Lone Ranger if you want, but examples show that anyone who walks the startup journey alone rarely gets into these 10-20% of successful startups business projects. According to EU Startup Monitor report 2018, most founders of startups in Europe work in teams (on average 2.7 founders per startup).
Interesting fact, Y Combinator refuses to accept startups with fewer than two team members. There are compelling reasons for this. If you are alone, it may indicate an inability to convince even your friend to believe in your product.
Actually, during startup creation, you have to take care of everything - from choosing a business model and legal issues to accounting and production, and it’s very difficult to be an expert in everything.
WARNING: Ask those, who know the ropes.
You make a plan anyway. Here is a simple tip - just estimate each of the tasks for every day during certain period, and you will realize that it is just impossible to have them done yourself. Business startups are not for the faint of heart. You don’t have to go this way alone.
Tip #7 - The tech team is crucial
One more WARNING for your startup project - implementation of your business project isn’t all that depends on your technical team’s quality.
Usually these people make incredibly valuable advice concerning strategic things, which may work quite good. The ability of technical teams and especially tech companies to provide strategic and tactical IT consulting qualitatively influences startup’s final result. So do not hesitate to contact developers for some handy tips and tricks, even at Pre-Seed stage. Their experience will really help your business! As we have learned from our own company’s experience - fresh ideas and outside view are vital for running a startup’s every stage. We are involved in concepts planning and improvements of about 90% of projects we work with. So, arm your business startup with a top shelf technical team from the very first steps of your way.
Tip #8 - Pay attention to legal aspects of startups
Now, let’s move to not so sexy but still important matter, and here are few legal reminders and tips for those, who are running a startup.
FIRST OF ALL, stock the business ownership. Some companies don't write it down on paper and by default consider they will get equal shares (let's say two owners – 50%/50%, 3 owners – 33%/33%/33%. But at some point, somebody starts thinking that he has done more work than others and this issue becomes the point of quarrel. Moreover, investors like when all the stocks are legibly defined. Company puts itself under a great risk starting documenting right in front of the your potential shareholder. Just imagine, something went wrong, scandal and accusations have started and you see them leaving and running away like Forrest instead of signing the contract!
SECOND tip, register your product. Let even code be registered like a literary work. You simply copy the code, paste it into the document and register it. And in case you made a change, you need to register it again. NEXT– execute the shareholders agreement! And THE LAST – subscribe the intellectual property rights.
WARNING: Remember that EVERYTHING is intellectual property!
And a free useful tip from us: don't accept the legal advice from people who are not your lawyers.
Tip #9 - Use analytic tools and other startups
Perhaps you will object - but we have already talked about market research! And you are right, but let’s focus more on a software that make all this possible. If you don't investigate the market it’s not a business but lottery. In fact, there are numerous tools for this purpose. Of course, Google Trends is the old hat here, with its help you can quickly and free obtain data on the presence and approximate scale of the market.
If you have money, you can buy analytics at any good company that does research in your sphere. If you don't have funds - do not fall into despair, there is always a way out! You can read the profile press, study the old reports on markets, statistics of public institutions, look for statistics on sales volumes of competitors, and so on.
WARNING: Do not delay using the available analytic tools.
Here is a little cheat sheet for your business;)
TOOLS AND SOURCES FOR FINANCING:
Budgeting tools PLANGURU, LIVEPLAN or INDINERO help to see a snapshot of the small business’s financial status. These programs will allow you to track key performance indicators (KPI).
MINT allows users to keep track of what they spend money on and prevent them from exceeding their budget. This tool is synchronized with the user's credit cards and bank accounts, and it can also be configured to control startup's accounts.
FLOAT - a simple spreadsheet, provides accurately measure your cash flow on a regular basis, which is crucial to keep your business prepared for any financial case. Tools available on Quickbooks enable you to:
- track revenue and expenses
- maximize tax deductions
- invoice and accept payments
QUICKBOOKS is one of the most reliable tools of financial businesses among the available online.
XERO and BODE TREE allow you to fulfill a real-time monitoring of cash flow of your business startup.
ACCOUNTEDGE PRO makes it easy to prepare, process, and provide financial reports. Its functions allow the founders of startups manage the payroll system, contacts, online orders, inventory, to sale and purchase, etc.
POINDEXTER makes the creation of financial forecasts simple, as well as development a budget for a new business plan.
TOOLS AND SOURCES FOR ANALYTICS:
KISSMETRICS allows you to understand your customers. It monitors, analyzes and optimizes the effectiveness of digital marketing using behavioral analytics tools. With it, you will learn in detail about the activity of each user on your website.
MIXPANEL doesn’t simply track pageviews, but user’s actions. It focuses not on clicks, but on events, and provides data in an accessible form.
HOTJAR is your priority tool for visual analytics of a website, it combines analytics with user reviews. Hotjar provides startup founders with 200 free recordings, which may be enough for those who are just starting business. And of course, you can take advantage of premium plans with more features and recordings.
CRAZY EGG also performs analysis of website visitors' behaviour, and reports you which spots they like more and which they like less.
STATISTA - one of the world biggest successful statistics databases, which contains more than 1 million statistics on thousands topics from above 22 thousands sources. Also, it provides data on market forecasts, industry reports, digital market outlooks and consumer market outlooks.
There are more available tools for business analytics: Snowflake, Redshift, Big Query, Azure Cloud, Tableau, Power BI, Looker, etc. Choose the one you like.
Tip #10 - No measure = no manage
Project management is based on four pillars: planning, organization, motivation, and control. If you are not watching their quantitative indicators, you have already lost the competition and simply don't realise what's going on with your business. These indicators must meet the strategy and KPI (Key Performance Indicators). Within fulfilling control, you will track and view several indicators, but choose the minimum set of KPIs that you will monitor daily. The main thing is to focus on what's important.
WARNING: Use right tools on every startup stage.
Analytics is critical for successful business running - you need to collect data, monitor indicators, track the dynamics of development. All this will help you make strategic and tactical decisions. And for each stage of a startup’s life only certain tools are appropriate.
1-10 staff members: Google Analytics is suitable for website analytics, and for the application you can use Google, Adjust, Mixpanel. As a Business intelligence (BI) fit Google Spreadsheets or Google Data Studio.
10-20 staff members: Now you need to analyze the effectiveness of each line of business. Use a CRM system, as well as Survey Monkey or its equivalents.
20-50 staff members: It's time to use the cloud solutions like Snowflake, Looker, Azure Cloud, Redshift, Tableau, Big Query, Power BI.
50-150 staff members: Use Erwin, DBT, MySQL Workbench tools. They allow to draw a data model that reflects business processes and the required indicators.
150-500 staff members: Use analytical data warehouse Redshift, Snowflake, Azure, BI (Tableau, Looker), Big Query, Machine Learning solutions, Big Data solutions (Spark, Hadoop), etc.
Tip #10,5 - Talk less, act more
Actually this is a very short paragraph, not confirmed by any statistical data or any research. That’s why we were not sure whether it deserves to take over #11. =) It’s just an advice for startup founders from our team: pay less attention to theory and more to practice.
WARNING: The best ratio of theory and practice is 20% to 80%.
Sounds like the Pareto principle at work, right? So spend 20% of your time on theory and 80% in practice. Do not spend much time thinking and talking, just act!
Any startup is a risk. Americans say, “If you can't run with the big dogs, stay on the porch.” There are thousands of dogs running every year, but many of them do not reach the target. Many others are unable to run long distance, even though they looked quite promising in the beginning. In fact, running any business, and especially starting a new one, will undoubtedly place a lot on your shoulders and force you to do more than you thought you could. A good startup is the result of a hardworking team, including thorough preparation through analytics, market research, studying target audience, and exploring financing. But the good news is that there are numerous tools available to help startup succeed. Your best ally is having a strong technical team to walk this journey with you.
We said it before but let’s say it again: your choice of technical team is the decisive factor for whether your startup wins or loses. It’s true. Your technical team is your morning coffee, your engine, your weather forecast before going hiking, your extra blanket on a cold night and your best counselor and the executor of your startup project. We're sorry for the last sentence, granny of our copywriter added it and we just couldn’t dare to delete it ;)
Good luck to you, and may your business project be featured in our article, “The top ten most successful startups of 2020”! If you need a technical team just press the button: