Failure is Not Inevitable — Tips to Lead Your Startup to Success
According to the US Bureau of Labor Statistics, within the United States alone, 20.4% of business startups will fail within their first year. Those are pretty scary statistics for anyone looking to jump into entrepreneurship, but is that an accurate representation of a startup? And how can you help avoid becoming just another failure statistic?
To fully understand the statistics, and how to overcome them, you must first understand that those statistics count all businesses who opened their doors…not just true startups, and unfortunately, true startup statistics appear to be much worse.
A true startup is a business and/or organization that is either offering a new service or product not offered by any other competitor, is innovative, brings new ideas and/or tech to an existing market, and/or a new invention.
For example, someone opening a mechanics shop, would not truly be considered a startup unless they were offering a completely new way to repair mechanical issues such as new technology, robotics, etc. Yes, the business itself is still new to the neighborhood and the community, but without innovative ways of repairing automobiles, it is more of a repeat of previously created businesses, not a true startup.
A true startup could be considered a risky business experiment that has potential. There are no statistics to guide your success if you’re marketing something never seen before. That is why the current statistics are not a true representation of actual startups, however, with any new business idea or venture comes a certain level of risk, and the higher the risk…the higher the potential reward.
The statistics surrounding startups are that 3 out of 4 will fail as they are solely based on assumptions of how the market will accept them with no previous statistics to help guide their success. But, that doesn’t mean there aren’t tips and steps to take that will help you avoid becoming just another failure statistic.
Reasons Behind Failure and How to Avoid Them
Marketing:
The number one reason CEOs and entrepreneurs list as the reason behind their startup failure is not researching the market enough to know if their product and/or service would even be wanted by the consumer. After all, with being a startup you are only assuming people will want your idea. Assume wrong with no actionable steps to recover…and your startup will quickly fail.
So, you have a great idea…you did your research and market testing…you finally introduce it to the public…and it is failing, now what?
Market testing is a great start to assuming how your product or service will be received, however, this is yet another assumption and what works in testing will not necessarily work on a mass scale. So, if your tested idea begins to fail be prepared to pivot.
Having the ability to pivot to suit market demand is key to a startup’s success. In fact, according to Startup Genome Project, startups that pivot 1–2 times witness 3.6X better growth and raise 2.5X more funding than startups that don’t pivot at all or who pivot too often.
An example of an extremely successful pivot that saved a failing startup is PayPal. Yes, even PayPal was at risk of failing as the initial business model was a mechanism to beam IOUs from palm pilot to palm pilot. The model didn’t work so seeing the growth of email and the success of a little company called eBay, PayPal pivoted into the transfer of money via email. That pivot has placed PayPal at a value of $94.58B today!
Team Development:
The team behind a startup is the fuel that will propel your initial idea into reality. So, it is easy to say that without a great team, your project will quickly lose steam and head towards another failed statistic.
To avoid this, it is essential to hire a team that not only understands and follows your company values, mission, and vision but to hire a team that is capable of each wearing multiple hats. In short, hire those capable of not only learning new tasks and responsibilities in their field of expertise but hire those willing to jump into different roles as needed for the common goal of success.
Unfortunately, as a startup, there is not a large pool of funds to hire and train a multitude of people to fill every role in your organization. Outsourcing is one way to reduce staff costs while gaining access to a worldwide pool of talent.
Outsourcing allows you to keep office costs down, increase productivity, hire people who will not require as much training in their role, and allows you to keep your focus on what matters most to your business.
An example of a company that used outsourcing to lead to greater success is Basecamp. Basecamp is a project management tool that helps businesses manage in-house and remote workers. However, in the beginning, it was only a four-man team so as the company gained exposure and popularity, the responsibilities to maintain and continue to advance the app became a never-ending task causing their internal processes to become a mess.
To address internal process concerns and continue to move the app development in a forward direction, the team began outsourcing to remote developers. This allowed them to reorganize their processes, focus on priorities, and helped them improve their product overall.
No Cash Flow:
Building a startup business is time-consuming and costly therefore managing the flow of cash in and out of your business is imperative to its success. This can become tricky due to several cash flow problems potentially occurring throughout the process, however, there are ways to minimize your risk and have plans in place to counter any cash flow problems that can occur.
- Build Cash Reserves — We have all heard the saying “saving for a rainy day”, however, the failure of many startups occurs due to no cash reserves in case of an emergency. This can be due to poorly timed vendor payment dates, delayed payments from customers, overspending, or simply of lack of accurate tracking.
To build your cash reserves; try renegotiating payment dates with vendors and customers to better align with your cash flow balance; implement a system to track monthly expenses and forecast future expenses for the months ahead; find ways to cut back expenses, even temporarily, and consider reducing inventory stock as holding large amounts of inventory directly takes from your cash flow.
- Research Pricing — Cash flow is directly affected by profit margins and expenses. Set your pricing to low and your profit margin will shrink considerably. Set it too high, and no one will wish to purchase hurting your bottom line. Vendor pricing also greatly affects your cash flow. One vendor may charge 3% more than an equally suitable vendor so do your research to find the best vendor and product pricing within your market.
It is essential to also have a plan in place to review pricing every 9 to 12 months to ensure you are not losing profits due to vendor price increases, low-profit margins, etc.
- Avoid High-Interest Loans — Startups are costly and it is easy to get caught up in a high-interest loan to cover your expenses. The problem with this is every interest payment slowly but surely eats your profits and disrupts your cash flow.
Refinancing and consolidation are two things to consider to lower the interest payments on any outstanding loans. Both can allow you to increase your cash flow allowing you to save for a rainy day and cover any emergencies should they arise.
In Conclusion
There are several obstacles and challenges when it comes to creating a successful startup. The tips above will allow you to understand and prepare for some of the potential risks allowing you to focus more on what matters to you most…growing your business to success!
