Why Startups Fail
Here is a checklist for every aspiring entrepreneur on the pitfalls to avoid while creating his or her own dream business empire.
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These days, it is becoming a norm to start you own ﬁrm. From four startups a day in India, the day is not far when we will move to one startup an hour. However, as is well known, more than 99 percent of startups fail to make an impact. Here is a checklist for every aspiring entrepreneur on the pitfalls to avoid while creating his or her own dream business empire.
1. It was a bad idea! Duh! It is a very bad idea when a product that worked in China or the United States is blindly emulated for India. Unless of course, it is solving a genuine pain point. Over the last decade, ideas which have seen traction include organising unorganised daily services viz. commute, grocery shopping, domestic help, shoe cleaning, cable TV and home broadband going forward. The moot point is that cute products that don’t address a genuine pain point won’t work. For instance, will you pay even a rupee for an app that enables you to add cute emoticons on an existing image?
2. Scale or rather lack of it! The single biggest design ﬂaw is to make a product that is relevant only for people staying in 100 feet road in Indiranagar. If a product cannot be consumed by 10 million users (Yes, 10 million!), then it is likely to be unproﬁtable and incapable of making large scale impact. Scale is necessary as business proﬁts tend to rise disproportionately with rising eﬃciencies of consumer scale. In case you are not comfortable with scale, a personality oriented startup might work for you (e.g. a tuition centre) but it isn’t sustainable beyond a few years!
3. Negative unit economics! This should ideally be the ﬁrst and not the third tenet! Unit economics or proﬁt per consumer should be the principal metric when evaluating a business idea. In case it is negative, a business should not be initiated. Irrespective of how lofty valuations of Uber and Lyft might seem on the stock exchanges, an idea with negative unit economics is bound to fail. Either the ﬁnancial investor will drive out the owner or the cash guzzling startup of yours will meet its organic end! Numerically, any startup that cannot generate a return on capital employed of at least 10 - 12 percent in the ﬁrst 3 - 5 years should be carefully avoided. Instead, the money should be invested in capital markets to generate a relatively assured return without the emotional vagaries of running your own startup!
4. Treat consumers as an afterthought! While I can give you a theoretical discourse on consumer experience, let me give you a live example to make my point. A leading food technology company recently changed its food delivery policy. If the delivery boy calls you while delivering food and you happen to miss the call for a reason; they will take the food back, charge the entire 100 percent of the amount you have paid as cancellation fee and send you a reprimanding message that you should be more responsible with food as a consumer! This policy is wrong at so many levels; a 100 percent cancellation fee for missing a phone call is outright unfair to a consumer, the model assumes every delivery boy is operating with the heart of an angel and that you as a consumer will do nothing else in life but wait for their call! It is not surprising that this policy has led to massive angst online and it is only a matter of time before the food technology company has to answer some very tough questions on consumer attrition to their ﬁnancial investors!
5. Societal pressures - the ‘log kya kahenge’ syndrome! Urban India has liberalised a lot towards its attitudes on pursuing your own startup but we still have a long way to go. A plush cushy job with an MNC is still seen as the most desirable option with appropriate societal cushion. In case you don’t agree; try telling the grumpy father of the beautiful lady you are wooing that, ‘I am an entrepreneur. I create jobs and wealth. I am the founder of Toshniwal and Zaveriwala enterprises.’ Imagine what the aunty in your neighbourhood will do to you at every kitty party in your house!
On a more serious note, being an entrepreneur is a very diﬃcult job. You will have more bad days than good ones. It is a very lonely and depressing journey. The brutal work hours that accompany the profession inevitably take a toll on your health and personal life. The best way to avoid energy sapping characters is to choose your social circles appropriately!
6. Poor choice of initial team! The ﬁrst 5 to 10 members will go a long way in determining the probability of success of your startup. If you get a bunch of micromanaging, artiﬁcial pressure creating maniacs; you are better served trying to request your old boss to give you your old cushy job back!
The initial team will need to have trust and respect amongst each other for smooth functioning. A leading online housing portal had their founder arguing with their investors like petty teenage girls on an everyday basis giving stiﬀ competition to Ekta Kapoor’s serials. We all know how that saga ended! To avoid egos ﬂaring up unnecessarily, it is best advisable that every member in the founding team bring a diﬀerent functional skill set. Too many people doing the same job is bound to create friction and unnecessary stress!
7. Luck! It is an age old adage that you make your own luck; the harder you work, the luckier you get. But despite all the good intentions, there is an element of karmic destiny that takes over. You have to be at the right place at the right time like billionaire entrepreneurs Bill Gates and Jeﬀ Bezos have both mentioned over the years. In case of Amazon, Jeﬀ Bezos has been quoted as saying that it was an incredible combination of stars; a once in a lifetime alignment! Not everyone is destined to be a magazine cover hopping, jet setting, president ﬁghting, billionaire entrepreneur! Sometimes you should just live with that.
In summary, your startup may or may not succeed in life. However, if the above tenets are ignored, it is deﬁnitely bound to fail!
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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