Starting Your Start-Up
Every year over 100 million start-up companies are born, with 75% of those failing whether it be within their first, second or third year.
So where does it all go wrong and what are the major causes of failing start-ups?
To answer this, let’s explore the typical start-up.
So you have gone to the bank and they were foolish enough to give you that big loan that you needed to get started, but what’s next? Most people think that the product or service is key; that it needs to be new or insanely creative, something that nobody has ever thought of. In actual fact, it might be the other way around.
“Success doesn’t necessarily come from breakthrough innovation but from flawless execution.” – Naveen Jain (founder and former CEO of InfoSpace).
To help explain this further, look at Boost or Subway who make fruit smoothies and sandwiches respectively. Now I wouldn’t say these are revolutionary ideas or products the world doesn’t already have. This isn’t to say that creative and innovative ideas are irrelevant, but they might not be as crucial as one would usually expect. Boost and Subway owe their success to the execution of their business plans.
One of the most common problems with start-ups are their business plan, or lack thereof. Once you have one, it’s important for it to be realistic. For example, emotional pricing is a big issue with start-ups.
Entrepreneurs normally overprice their products or services or won’t adjust accordingly to the market. Why does this happen? It could be due to their passion behind their product and/or their lack of understanding of their customers. The sad truth is, not everyone is going to be as excited about your idea as you.
With any start-up, you need to be able to provide something your competitors can’t.
Another start-up issue can be the people around you. Your cousin who just finished their Bachelors in Accounting might not make the best financial advisor, or your best mate who was a manager at Cotton On might not be the best to help you build a business plan. Get the right people around you -people with fitting knowledge, skills and people who you can trust.
“Surround yourself with the best people you can find, delegate authority, and don’t interfere as long as the policy you’ve decided upon is being carried out.” – Ronald Reagan (Former US President).
You have a business plan, you have the right people and you have the passion but why is no one coming into your store? Why aren’t the phones ringing? Marketing could be the reason; too many start-ups leave their marketing to the word of mouth of their friends and family. Not all consumers are going to automatically love you the way your mum does. You need to be able to get your product/service out there to show off its value. Don’t forget social media and the internet are your friends. Use them to their fullest.
So you have gotten past these steps, you have opened your business and everything is going to plan. You have even outdone your own expectations in the first 3 months. You think to yourself, we must expand and we need to open ourselves up to more potential customers! But wait, you must master your market before you move.
Another big stumbling point for start-ups is their ambition and desire to expand before becoming stable. Think about it this way: if you were to say to your employees ‘Hey team we have had a gangbuster first quarter and have already paid off 20% of our initial debt, we should expand!,’ everyone is going to look at you like you’re crazy and take away your company credit card.
It is a shame that even if you avoid all these potholes, your start-up can still fail because sometimes it just comes down to timing. Economic climate can be unpredictable. Sometimes people are willing to spend, and just as suddenly, people can stop spending at the flick of a switch. A small part of a start-up’s success can rely on luck.
However all this failure is not in vain. The average millionaire goes bankrupt an average of 3.5 times though their lives. This might not seem convenient, but as you fail you learn, and next time, you will be prepared.
As the famous business mantra goes ‘fail fast, fail often.’