by John Stone, Bizzmark Blog |
There are estimates that indicate that about 90% of startups fail. What is more, every established company has to deal with a major breakdown at least once ion its lifetime. The reasons for failures are diverse, but I most cases it can be boil down to lack of cash and having wrong people in key positions. Whatever the “external cause” may be, one of these two is usually revealed. Successful companies, however, usually owe their survival and well-being to premium products, excellent marketing campaigns and a team that is willing to learn.
One of most frequent problems that startups face is the realization that there is a very small or nonexistent market for their products or services they are developing. There are three scenarios to that. One, there is not enough motivation in buyers to buy a product. In today’s terms when competition is fiercer than ever, accompanied with numberless faucets for money spending, you need to find buyers who need what you are selling so badly that they are willing to buy it. Two, market timing may be wrong. You could even be years ahead of the market, but the buyers don’t recognize the brilliance of your product or service yet. You can hope that your funding will last. Three, the amount of buyers who are desperate for your product or service and are willing to pay is not enough.
Wrong Business Model
The second most frequent reason is that entrepreneurs fail to estimate what lengths are needed for attracting the customers, in other words they believe that it is going to be too easy. Unfortunately, and interesting web site, genuine products or attractive service is often not enough to get you a queue of customers in front of your store. It might be enough for the initial customer rout, but over time it becomes clear that such way is too expensive and that the cost of acquiring a customer (CAC) is higher than the lifetime value of the customer (LTV). What a startup needs to do is find a model that is measurable for acquiring customers, and that can capitalize on those customers at the level that is significantly higher that the CAC.
One couldn’t believe how common this problem is. A good management team is competent enough to stay deal with the business model, lack of cash and product issues, not letting them ruin the whole operation. There is a number of mistake that a poor management team is prone to make. These include:
· Developing a strategy that is not strong enough, working on products that doesn’t attract enough buyers and failing to work out the ideas before going into development. This leads to poorly thought and go-to market strategies.
· Irresolute execution, which piles up to product related issues, like breaking the development deadlines, and poor implementation of go-to market execution.
· They build weak teams of subordinates. Top executives will build top teams, and weak executives can only build poor teams as an average a 1st tier manager is not motivated to work for a poor executive. The result is a weak company and widespread poor decision making and task meeting failures.
Problems like this can be avoided by creating an environment which gives training opportunities like getting a diploma of BA and where the development of new skills is valued just like the development of a new product line.
Cash Drying out
A competent CEO must understand how much cash the company is left with and whether it is enough to reach a financial milestone that leads to successful financing or a positive cash flow. The problems arise when the management fails to push the company out of a crisis to the next milestone before the cash dries out.
The most important thing for a startup is to stay above the surface and to develop its human potentials with equal importance as a new product or service. No matter what your business model or strategy might be, developing a solid base of human resources will get your business unscathed through any rainy day.