The biggest hurdle facing most startups is to stay in business long enough to be successful. If they accomplish this then they have the chance to turn into an ‘overnight success’ after many years of hard work.
The numbers are against most new businesses. Many new businesses fail within the first three to five years. Even inside well-resourced large companies the challenges of bringing new products to market see many fail to make it.
This means that every startup sets out on a journey with the odds stacked against it. Every new startup is a triumph of optimism over evidence of other startup failures.
The real challenge for each startup is to stay in business. And sometimes hard questions must be asked to help the business survive.
The important factors in small business survival are:
- Focus – ability to say no to interesting opportunities that do not support the strategy
- Revenue – realistic sales targets with concrete and realistic plans to achieve them
- Cost control – ability to resist non-focused expenditure
- Customer focus – understand the specific market or markets and deliver what they will pay for; be ruthless with products that they don’t want
- Competitor analysis – know what competitors are doing and how to respond (if at all)
As Mick Liubinskas is well-known for telling entrepreneurs, startups must “focus or fail“. It is easy for a new business to find many things that it could possibly do. Often it is more important to identify the things that the business will not do (or will not do now).
One of the most important things to know is what things the business will absolutely not do. Out of scope items are more critical than in scope items, since they determine the boundaries within which the business will operate.
Everyday that the business survives and makes money is a good day. Many startups have big dreams. But if the business cannot survive to realise them then those big dreams will be crushed.
Cashflow and sales are nourishment for the business. There is a temptation to say “more capital will solve our problems”. However, this is not always the best course of action. The more investors a business has, then the more obligations one has to deliver for the investors.
Substance over style
There is a temptation for many startups to focus on external impressions and public relations at the expense of doing the hard work. That is, the hard work of setting up proper business management systems and processes to support the enterprise. While marketing and public relations are important, if the substance of the business is not well formed, the business will likely struggle to scale (or even to survive).
Leadership and management
Typically people startup a new business due to passion, and very often they do not have previous experience in leadership and management.
Business leaders undertake serious roles with obligations to shareholders, investors, customers, and staff. The fiduciary duties associated with business leadership are often not common knowledge.
Some things to do…
- Set up sound management and operational processes and systems to support the business
- Clearly define roles and responsibilities within the business
- Have a clearly documented business plan together with key performance indicators to track progress
- Set up a business support or mentor network – get advice from people with experience (and be willing to act on that advice)
- Read up on why other businesses failed and work out how to avoid the same pitfalls
- If in doubt, seek professional advice, and be smart enough to take it
Some useful links from the Australian Securities and Investment Commission (ASIC) about running a company:
Articles on business failures
- 76 Startup Failure Post-Mortems
- The R.I.P. Report – Startup Death Trends
- 33 Startups That Died Reveal Why They Failed
- ‘My startup tanked’: Why more entrepreneurs are being open about their failures