Let's have the bad news first: startups have a disproportionately high chance of failing in comparison to other kinds of companies. According to a survey from 2014 by Fortune, startups are experiencing a failure rate of more than 90%, which is quite a disheartening prospect to consider for entrepreneurs. The most common reasons for why startups fail include the lack of a target audience, financial problems, lack of key personnel, and the increasingly competitive global marketplace.
What is the good news then? There is a common bit of wisdom which states that in order to succeed, we must first fail. And since there have been so many failed startups, it is now possible to analyze their mistakes in order to avoid them more effectively. In other words, by learning what not to do, we have managed to figure out what the best moves are. So in the rest of this article, we would like to share our insights on how enterprising individuals should proceed once they have decided that try their hand at launching a startup.
Conduct Market Research
Before setting anything in motion, prospective startuppers should first consider whether the product or service they are planning to sell is market-viable. Let's break this down. First, we are all somewhat in love with our own ideas, but this doesn't mean that they translate well into something people would want to buy. Second, even if there is a demand for what your startup is offering, it is quite possible that the price consumers are willing to pay is lower than what you need to make a profit, or at least break even. Finally, even if you manage to find an audience that is willing to consider your offer at the price you have set, this won't mean much if there are competitors which are all offering something similar. In other words, startups have to conduct extensive market research to find out whether there is a niche for their offering.
Formulate a Business Plan
If research has indicated that the market is ripe for what your startup is going to be offering, it is time to sit down and formulate a business plan. Launching a business can be quite an endeavor, so taking the time to figure out all the relevant details in advance will go a long way towards increasing the likelihood of the venture's success. This doesn't mean that you should stick to your initial plan to the exclusion of everything else. The situation changes quickly in the world of business, and your plans will have to follow suit. With that being said, an effort should be made to formulate at least a general mission statement, a description of the product or service, and a financing and revenue model. Treat your business plan as a general guideline you can turn to when you are unsure of how to proceed, and not as something set in stone.
Secure Adequate Financing
Once you got your plan down, the next step is to establish your financial infrastructure. The first item on the list is acquiring initial capital to get your company off the ground. In some cases, private funding can be sufficient when just starting out, but in others, you will need to find independent investors. To have a better shot at attracting them, be sure to present your market research and business plan, and don't forget to practice your sales pitch. After the initial investment has been taken care of, it is time to figure out your revenue model. Some of the options here include direct purchase, subscription, various freemium models, or even voluntary donations. Your projected revenues should then be measured against your businesses expenses, which you ought to figure out as well. These include everything from the costs of raw materials, equipment, salaries, marketing, and everything in-between.
Hire the Right Personnel
Workers are the greatest assets of any company, and this holds doubly true for startups. Often, the only thing a startup can rely on in its first few years of doing business is the passion and talent of its founding team. Therefore, all startups should make it their first priority to hire the right people for the job. An ideal startup employee ought to possess the following three characteristics: talent, growth potential, and experience. Finding the candidates who possess the aforementioned traits is not easy, which is why all possible demographics ought to be considered equally during the screening process. For example, immigrant workers have shown time and time again that they make for star employees, but they often end up flying under the radar for most companies. To counteract this, startups should try to cooperate with legal firms to find the best possible candidates for the job in less well-represented populations.
Taking the path of a startup entrepreneur is a challenge not to be taken lightly. There are many obstacles on the path to success, and startups often have to enter the race from a handicapped position. Fortunately, many of the difficulties that startups face can be successfully tackled with the right mixture of effort, skill, creativity, and a little bit of luck. By following the guidelines we have outlined above, the odds of making it past the dreaded 5-year mark will increase significantly.