Killers of a young business: 5 factors that can put an end to your startup
If you heard about a startup a couple of years ago – most likely it is already gone: the project, as they say, is frozen. Opening a business in an innovative, high-tech niche is the most risky and unpredictable business activity. But if you prepare in advance for the dangers and take into account the risks, everything can turn out. Experts of the EMERGE technology conference will tell about this and many other things.
Closing is easier
Today, the period of one year from the date of discovery is no longer considered critical – in 2017-2018 at this stage, from 10 to 20% of start-ups were closed at that stage. “Mass death” begins later: according to estimates by the US Bureau of Labor Statistics, in 2018 only two of the five startups opened in 2014 worked. The figures vary widely for different sectors of the economy: relatively low rates (42-44% of projects stopped in the first years of work) in insurance, education and health care. Information startups close one and a half times more often.
Why? The founders rarely name one reason for collapse. The most formidable of these – the market did not need a product (42%), the team ran out of money too early (29%), the team was poorly selected (23%) or simply incompetent (18%). Problems of product promotion – poor communication with potential consumers, unsuccessful marketing, and so on – 10-15% of startups are ruining. Each of these factors destroys startups in its own way.
First killer: the market
A startup that presents a product on the market that is not needed there will quickly go to the bottom. It doesn’t matter why the market is not ready to accept a new offer. Often there are situations when the “pain” of the client is not yet ripe, he does not want to change his consumer behavior for her.
A vivid example of “uselessness” – the client does not understand at all what his need could in the long term satisfy the product: marketers did not find an audience, did not “fall” into it. “The biggest risk of closing a startup is at a stage when you can find out that a problem solved by a project with a specific technology and business model either does not exist at all, or it excites a minimal share of the target audience,” says Konstantin Sinyushin, head of the venture capital fund.
In addition, there may be free or very cheap similar solutions on the market. You can often see young entrepreneurs obsessed with the idea of a “second YouTube”, a “new Telegram”, “like Instagram, only on the blockchain” and so on. Unfortunately, such searches are doomed. According to analysts of Orange Business Services, this factor is the most important: “We would first of all highlight the problems with financing due to the start-up of a startup in a highly competitive market without unique know-how. In order to avoid this, it is necessary to analyze in advance the market, its competitors, and also to test an idea or a prototype. ”
Second killer: the ideal
Facebook founder Mark Zuckerberg is credited with a number of catchy statements, but the most famous of them is “Done better than perfect” (Eng. Done is better than perfect). A startaper who gives preference to the ideal will most likely destroy his business. In high-tech projects, this “imbalance” is clearly seen in the example of development and marketing: programmers are ready to endlessly improve the code, teach their program to this and that, and with sincere annoyance they perceive the demands to leave everything as it is, because at least someone needs it, finally to sell.
Finally, the “ideal” vision of a startup’s management may differ from what the user considers ideal. “Often, founders are overly keen on creating their product and do not take into account the real problems of their customers. It makes no sense to create a perfect (in your opinion) product that no one will buy. Start-ups working on the product in constant contact with their clients are developing most efficiently, ”said Mikhail Usubyan, consultant for the international law firm Orrick, Herrington & Sutcliffe.
Third Killer: Weak MVP
The specificity of the MVP stage – the minimum viable product – is that neither investors, nor clients, nor competitors can see anything except this product. Of course, they will listen to your pitch and read your blogs – but then. MVP is the face of your project. MVP is proof of the seriousness of your intentions, your entrepreneurial maturity. There are only two critical requirements: MVP should really work well and to the extent necessary reflect the properties of your product. If the first or second is not realized, no other efforts will save. People around will see and remember: you said that the product is good and works – and it is bad and does not work. The most dangerous point for the life of a startup.
Brightmore Capital Managing Partner Dmitry Fotiev warns: “The greatest risk of closing a startup is the stage between MVP development and the first customers. To prevent the failure here, we need thorough market research and an understanding of what exactly the buyer needs.