7 Things a Startup Should do to be Unsuccessful
Despite such promising statistics, growth in the startup ecosystem has slowed down in recent quarters. With lower fund inflows and layoffs on the rise, smaller startups are merging with stronger, financially and operationally sound companies; or shutting shop as they fail to turn cash flows positive.
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The last decade has seen India become the world’s fastest growing economy and simultaneously a thriving start-up ecosystem has also taken shape. Recent reports suggest that more than 98,000 new companies were set up in the year 2014-15. According to NASSCOM, India ranks third among global startup ecosystems employing close to 85,000 people.
Despite such promising statistics, growth in the startup ecosystem has slowed down in recent quarters. With lower fund inflows and layoffs on the rise, smaller startups are merging with stronger, financially and operationally sound companies; or shutting shop as they fail to turn cash flows positive. This roller coaster ride for startups has seen entrepreneurs throw caution to the wind or sometimes become too cautious.
For successful startups a good idea is the foundation but that’s only the first step. “There’s many a slip between the cup and the lip,” goes the old proverb. Among a million reasons that hamper the success of startups, there are a few common mis-steps that may reflect deeper issues in the working of the company.
1. Valuing valuation over Profitability: We have all seen how valuation figures for companies double and halve and then double again within a calendar year. These depend a lot on market sentiment and that’s what startups should avoid pegging their decisions against. Instead of chasing the mirage of valuation, profitability is a robust measure to build a company around. Rather than working to provide VCs and investors exits, profitability is something that survives market volatility and lull periods in funding alike.
2. Don’t imitate, get inspired: Even breakthroughs that change entire industries have the work of thousands of brains working together. To borrow and build on previous ideas is the very nature of innovation. The idea that innovation involves a lone genius sitting in an ivory tower and working on a blank slate is not a constructive way to build startups. The key is to take the best ideas around but transform them and leave them better than they were before.
3. Scale too quick: The proportion of a startup’s capital that is invested in developing new capacity is more an art than a science. All the numbers in the world cannot tell you how to develop a sense of when to leverage your credit and rush to increase in size. This is where the entrepreneur makes it or breaks it. At the very least it is necessary to keep a system of checks that get triggered in case the scaling of the business is losing direction while gaining steam.
4. Scale too slow: The market waits for nobody. No matter how path breaking your product or idea is, once you open your bag to sell your wares, there will be a hundred imitators trying to make money off your idea. This keeps the biggest companies on their toes and makes sure that a first mover advantage never stays permanent. This drives further innovation in the free market and ruthlessly discard slow movers.
5. Over-hiring: A pervasive trend across businesses is that when the going’s good hiring tends to outpace requirement. Apocryphal stories from San Francisco speak of how the tech startup market tracks the sales of foosball tables in San Francisco. When the market is awash with funding and liquidity, companies hire like a nation going to war and ply employees with good wine, great food and all kinds of entertainment. But as mentioned above, when the tide turns and the valuation game stalls, employees spend their days waiting for the axe.
6. Buy customers with freebies: Companies worldwide can’t seem to get enough of raining discounts and cashbacks upon customers. While it may be a steroid needed in the early stages, it doesn’t quite help if you’re looking to evolve your business into a sustainable one. Customers that come to your product because of the freebies will leave as soon as you run out of money to keep the freebies coming.
7. Ignoring competition: Once you find your niche, and concretize the idea that will rocket your business, you need to account for two things: the customers’ needs change over time, and second, your competitors are always changing too. You need to keep pace with those changes.
If you fail to provide your customers with value, they will naturally drift to your competitors, and your employers will begin looking elsewhere. While you may seem to be doing everything right, the gaps that you don’t fill up in time might end up tearing your business apart.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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