90% of startup ideas don’t convert into sustainable businesses. 75% of funded startups do not give a positive return to the investor.
A google search on “success rate of startups” will produce a range of articles on this topic.
The key to survival of a bootstrapped startup, often lies in the time taken by the startup to start scaling. It is only when it reaches a point where it looks like scaling, do investors start coming forward to fund. As a business mentor, I meet a variety of startups, at different stages of business evolution. The composition of the core team is clearly a major differentiator, between successful and unsuccessful startups.
While young fresh minds setting up businesses is a welcome idea, it is important for them to be supported well, in order to succeed.
Management experience as a key differentiator
The spark for all startups is a product or service idea, most often, a technological innovation thought out by the founders, who have I.T. capabilities. However, those who manage to
- define a clear target customer segment
- deliver their products early to the market
- develop a profitable pricing model
- have an effective customer acquisition process
are the ones who pass the first test of survival and invite investor interest.
9 out of 10 startups tend to fail on this count. They are able to develop a product prototype; they manage to meet some prospective customers and may be, even establish some early product trials. At this stage, a few lucky ones even manage to raise some seed funding for the idea. But they lose a lot of time and waste precious funds, trying to establish a visibly, viable and scalable business model.
The reason clearly, is the lack of business development and management experience in the core team. The product development oriented founders either do not visualise the need for an effective business development team; or take it to be unaffordable. As time passes and a clear business model doesn’t evolve, there is pressure from the seed investors; and the founders find themselves at crossroads, not knowing which way to go.
Core team needs to deliver early market success
For any business to succeed and grow, the following must happen.
- Target Customer Segment identification: While an entrepreneur may have an interesting product idea, it is important to assess whether there is a set of customers who will willingly buy the product, at a price profitable to the startup. Startups need to do adequate market research and brainstorm hard to arrive at the right product-customer mix. A healthy combination of experiences in the core team ensures a discussion that covers all angles.
- Reaching the right customers : Reaching out to potential customers is the next step. Here again, lack of prior experience and contact base can result in the inability to open the right doors or landing up knocking at the wrong doors. The presence in the core team of an experienced Sales/Business Development person, with domain experience, can be a great help.
- Building Scale: After one or two successful customer acquisitions, the startup needs to scale up fast, to reach a point close to breakeven at the early stage cost structure. This is important for two reasons. (1) The initial ability to scale up, provides the necessary comfort to the seed investor, as well as, to the potential next round investors. This ensures funding does not dry up. (2) The entrepreneurs must strive to achieve a cash breakeven, to ensure they survive, just in case there is a delay in further funding. An appropriate sales team becomes critical for this.
- Managing Customer Satisfaction : Having acquired the first couple of customers, it is very important to ensure that the customer expectations are fully met. Failing here kills the business prospects completely. Doing well, on the other hand, makes these customers important brand ambassadors. They are the ones whom investors may want to meet. They are also the examples to be quoted, while acquiring new customers for the scale up. A small, but focussed, customer management system needs to be set up, therefore, from the beginning to hand hold customers.
Planning the core team right in the beginning
It is therefore extremely critical that startups plan and have a core team of 3 or 4 people with
- A good mix of technical and business management experience in the core team.
- The original founders may be tech savvy, but are often inexperienced in technical operations. Bringing in an experienced co-founder in the technology operations space is very useful.
- A business management specialist as a co-founder, with exposure to sales and customer management, ideally in the domain space, helps visualise and manage both functions.
- A consultant or a senior employee needs to focus on business financials and work on logical and acceptable business plans.
A balanced core team and strong operational capability, therefore, are key to survival and growth of a startup.
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