According to Investopedia, the failure rate of startup businesses were about 90% in 2019. Do you also want to start a company with a higher potential for success? But how?
Well, for starters, you can focus on industries with CAGR, a Compound Annual Growth Rate of over 4%. Sounds simple now. But why is CAGR important? Because a higher CAGR indicates that people are steadily purchasing products and services consistently over time. A recession or pandemic won’t stop the growth (1).
If we dive deeper into the subject, it is essential to realize that success or failure mostly depends on entrepreneurs’ hustle, resources, and decision-making abilities. Even though certain external and uncontrolled factors can play a big role in a startup’s performance, it is unusual for a business to fail or succeed suddenly independently from the founder’s action (2).
Yes, no one wants to start a business to fail. However, only some entrepreneurs do what it takes to build a successful and profitable company. It is unusual for a business to fail because of bad ideas. Usually, it is because the founder is not committed enough to build a successful company.
Even founders who long to see their products on the market with paying customers can eventually get overwhelmed with roadblocks and challenges. Nevertheless, turning an idea into a successful solution that makes a difference is a feeling that is worth every sleepless night.
The hard and bleak truth that every entrepreneur needs to meditate on is that nine out of 10 startups fail. Some entrepreneurs write their ‘failure post-mortem’ even before they launch their startup (3).
But why? Because even highly optimistic entrepreneurs need a dose of reality every now and then.
We do not mention such cold statistics to discourage entrepreneurs but instead encourage them to work harder and smarter.
There is no denying that entrepreneurship is surging in India. Millennials help fuel the Indian startup ecosystem, and Genz is most likely to continue the trend (4). While it sounds interesting for the Indian economy, many of these entrepreneurs could fail. So how can one increase his success rate?
Characteristics of Successful Startups
There are several characteristics of successful startups. Below are enlisted some of the most important elements for a startup to succeed.
Perfect Market product
According to a Fortune report (5), the top reason a startup fails is to make products that no one wants. According to a survey analyzing failed startups, 42% of founders found that ‘the lack of market need for the product’ is the biggest reason for their failure.
Hence, if you will utilize your time to develop a product, make sure you also spend enough time to ensure that it is right for the market.
Entrepreneurs Do Not Ignore Anything
After the company for founded, the leaders of Dijiwan stated that (6)
“A good business idea and a strong technical team are not a guarantee of a successful business. One shouldn’t ignore the company’s issues and the business process because it is not their role. Eventually, it would deprive them of any future in that company.”
Even though they had a strong team and a great product, what did they lack?
If you look deeper into Dijiwan, it would be visible. They overlooked business process key aspects and ‘the boring stuff.’
The CEO believes that it is his job to lead, CMO thinks that his job is to market, and the lead developer thinks his job is to code.
However, a startup doesn’t work like that. Things are quite organic when it comes to the startup segment. It means that roles and responsibilities would overlap. Even small things can turn into something large. Some of the essential components of a startup are those tiny issues of business process, scalability, and business model.
‘Successful entrepreneurs know that they must work on their business and not in their business.’
Growth, especially rapid growth, is what entrepreneurs long for, investors require, and the market wants. Rapid growth is the indicator of a great idea in a hot market.
Growth leads to more growth, leading to even further growth. A startup should not get satisfaction with marginal single-digit growth rates after several operating months. If the growth is not happening after a certain amount of time, it means that the growth would not happen. A firm that is not growing is shrinking.
Another reason why a startup fails is a lack of cash. But why do they run out of money? It is because they failed to grow fast enough. If your startup is growing rapidly, it would mean that you can easily bypass some of the major startup killers, such as losing customers, competitions, personnel, and passion.
Early rapid growth is a sure sign of future success.
Every startup has the backing of its team. The more versatile the team, the better chances of success.
People often view versatility as possessing more than one talent or skill. However, it is more than that in a startup culture. It involves the team’s mind, ability to change products, adjust to varying compensation plans, take up a new marketing approach, rebrand business, shift industries, and even scrapping a business and starting all over again.
Moreover, startups with co-founders have a higher success rate compared to companies with a single founder. There is a partnership with co-founders. It means more accountability, helping one avoid some of the pitfalls of a single leader (7).
Increasing Your Success Chances
Whether one has the necessary resources to start or not, you need to quickly get to work. If things work out, you are in or do not, you move on to the next venture. If you need funding, seek it and if you fail, choose a different path, and keep moving forward.
Remember, sitting on a product or an idea for months and years would cost you money and time.
Most entrepreneurs’ brains are an idea factory. They see a problem and instantly think of a solution. If there are no issues, they keep on thinking about how they can enhance existing solutions. Such a problem-solving mindset can be both a blessing and a curse to entrepreneurs.
However, one can’t just flip an idea, build, and sell it overnight. Capturing a new idea means starting from scratch, even if it seems like one is ahead of his curve. It means learning from the space, key players, market, and business.
However, the key is quite simple. You only need to go for opportunities in the areas you are familiar with and stick to it for as long as it requires to build a successful business.
When you understand the space, it becomes easier by making fewer mistakes and leveraging resources such as connections that you have spent years building. You can move even faster by hiring people experts in your industry.
One of the common mistakes entrepreneurs often make is going after a necessity-driven business. It means an entrepreneur is looking for an opportunity based on the return they can potentially generate. However, don’t confuse it with a side hustle or a passive income-generating project. In short, necessity-driven business means starting a business to make money.
There is research indicating that opportunity-driven businesses are more likely to get successful and thrive. One can find and focus on tapping an opportunity by capturing long-term returns over short ones.
Another common mistake entrepreneurs often make is relying on gut feelings instead of facts and factual data. Today’s most successful entrepreneurs had to make decisions and have learned certain things over the years. And there is nothing wrong with seeking their bits of help.
Similarly, building a business in an industry one is familiar with, asking experienced entrepreneurs, would also help cut your learning curve. According to research (8), mentored entrepreneurs are 5x more likely to start their business, and 12% are more likely to remain in business after a year.
Moreover, when you finally decide to build your startup, it feels risky. It can happen even before you start thinking about making any investments or taking any action.
The relationship between risk and return is quite clear. If you don’t take any risk, you will have to settle with little to no returns.
Nevertheless, smart entrepreneurs take calculated risks. You can also start taking calculated risks by focusing on areas you are most familiar with, starting an opportunity-driven business, and seeking mentorship without taking extra time (9).
Mistakes to Avoid
Certain mistakes are common but also quite controllable and easily avoidable. Take it as actions you may take that can negatively affect your startup success.
When it comes to entrepreneurship, the hardest part is to build a sustainable business. Here are some general business rules you can follow:
- Start with a big vision while stepping on one short-goal at a time.
- Break down your short-term goals into small, realistic milestones and celebrate your small wins.
- Be open to any changes.
- Understand that one startup failure is bringing you closer to building a different sustainable business even if ideas are entirely different.
Guideline for building a lasting product:
- Surround yourself with future buyers and potential customers from the first day. They will help you build the product as if they are co-founders of your venture.
- Virtually, you can test any idea or feature before development. Ensure you pay attention to validation signals and avoid thinking that things would change once you build them.
- Make sure to work with the best. If you can’t afford the best, hire as leaders or mentors.
Additionally, you also need to focus on building your business’s foundation, regardless of how long it would take (10).
The foundation of your startup is a product people use, recommend others, and pay for. You will need to take a series of product iterations to achieve those three pillars. Once you reach there, even if you only have a few customers, it won’t be hard for you to expand your business to a significant number of buyers.
In most cases, the biggest portion of any startup investment is for product development. There are times when you bet on a team that looks like they may be able to get the job done since the cost of hiring the best is higher (11).
However, in reality, underqualified candidates’ hiring costs can be significantly higher than the right talent’s premium price. Remember, miscommunication, redevelopment, mistakes, and slack will eventually cost you more time and money.
If you can’t hire the best, get them involved as guides or advisors for your team. Even if they are not directly doing the work, their leadership will increase your product’s and startup’s success probability.
Remember, there is always something one can do to improve a product. But, there is no such thing as a perfect product. Your long developmental cycles would only delay customer interaction and feedback.
The cost and time needed to test new hypotheses can be expensive. Hence, more insights you gain before the product development and more involvement from customers would help you build the right features. Minimize your risks and expenses by opting for a quick building and releasing strategy (12).
Avoiding these mistakes would significantly increase your startup success probability.
Assuring Your Startup Success
Bill Cross, an American investor, philanthropist, and fund manager, describes in one of his TED talks the factors that can lead to startup success (13).
According to Bill, several entrepreneurs think that having the right amount of funding plays a huge role in the success of a startup. However, funds are not a direct indicator of success.
According to market statistics and estimates, startups with fundings have a higher success ratio than non-funded startups. Companies with good fundings have a 14% success ratio.
Bill further talks about the business model, which serves as a clear advantage at its establishment; some companies are thriving even without one.
For instance, YouTube didn’t have a business model at the time of its inception. Nevertheless, a business model can only be advantageous for startups since all companies must have a clear revenue generation path.
According to Bill, having a clear structure in the startup can lead to later success with the success ratio of 24%. Moreover, having the right idea has a 28% success ratio for startups.
Bill further talks about how a well-functioning team is essential for both startups and established companies. The founder must trust his team completely, not only in everyday working life but also in crisis situations, especially then.
In his TED talk, Bill tells about how a good team can successfully adapt to the reality of a demanding customer. In a way, he is viewing the team as the crucial point of the startup’s success.
Even though the team is one of the significant elements for a startup’s success, Bill says it has a 32% success ratio.
When it comes to the difference between success and failure (14), timing is the winner with a staggering 42%. For instance, Bill observed that several investors had given up on Airbnb because several of them believed it was strange for a person to rent a room in their house to a stranger.
Apart from a great business model and team, Airbnb also had the best timing on its side. It was founded during the recession when people needed extra money. The right timing made it as successful as it is today.
Apart from Airbnb, another globally known company, Uber also benefited from the recession since the drivers were seeking some money to get an extra income.
Even though no recipe guarantees success, such factors can help a startup grow and increase its success chances (15).
Often, startups face competition and everyday challenges, but they also have to survive during the crisis and make the best of the situation (16).
It can be quite challenging and nerve-breaking.
At the same time, such a crisis can also offer a window of opportunity for some companies in either the medium or long-term. Especially, stronger startups can take benefits out of the situation.
The aim of any crisis management is to save the business. Usually, early action is the most important instrument of crisis management (17).
Entrepreneurs need to take even the initial signs such as declining sales or liquidity struggles seriously. It is often that Professional crisis management is only possible with external experts.
However, every company must carry out crisis management and adapt to them in the best possible method.
There are several ways how your startup can survive a crisis and even continue making a profit from it. Your business and team mustn’t freeze during the crisis. It is not the time to continue doing the same tasks every day. One needs to be creative and think outside the box during a hard time (18).
You also don’t need to be afraid to deviate from your original business plan. Get your team together and brainstorm your ideas.
Remember, customer needs will always change during a crisis. Make sure you keep up with the trend. The aspect is also linked to the previous one, innovation and thinking outside the box.
Try to find solutions with your team to make sure that you are not losing your customers. Or even increasing your customer base in the best-case scenario.
As an entrepreneur, it becomes your responsibility to minimize operational errors and approach new obstacles. If necessary, time management would play a major role in getting a change such as your enterprise.
During a crisis for any business, one of the most important things every entrepreneur and founder must avoid is the company running out of cash.
Many founders are afraid of losing their startups during a crisis. Make sure you also start exploring areas where you can maintain your liquidity.
One can use government programs to tackle the financial impact of the crisis. You can also try exploring short-term working and starting negotiations on your next financial round.
However, if you do not see any other possibility, you may also need to consider reducing the size of your team. Many startups also choose to work fewer days to reduce labor costs and ensure that they don’t have to spend more time and resources to hire and rebuild the team once the crisis ends (19).
Overall, as an entrepreneur, you should never fail to take advantage of the opportunities that are coming on your way and adapt your products to the evolving requirements to assure the survival of your business.
There are no startup success stories that are alike, and neither are there any similar startup failure stories. Bringing your ideas to life needs a lot of sacrifices, risk, and hard work. As an entrepreneur, make sure you make smart and calculated decisions (20).
There is no way you can avoid risks when you are running a business. However, don’t cower before such challenges and obstacles. Use the right metrics to monitor which areas of your business need improvement and take actions accordingly.
Don’t hesitate when you need to make changes if necessary. Remember your customers are your key; always remain connected with them, use surveys and stay updated with market trends.
Avoid throwing your money into the problem. It is very essential, especially for startups, to limit their spending. Always hire the best for the job and give more attention to sensitive projects of your startup.
In the end, these tips would help you increase the chances of your startup growth and success. Let us know your thoughts in the comment!