Perils In The Startup Space

Perils In The Startup Space

Business consulting provides exposure to a diverse portfolio of companies and industries, from established enterprises to mid-size setups and to early stage concept discussions.  The entrepreneurial startup culture is an intriguing and challenging space, responsible for taking ideas from zero to one.  Through a collective exposure & deep experience in the startup ecosystem it has become apparent why only 3% of entrepreneurial enterprises succeed.  Internal business complexities overwhelm the market uncertainty, necessitating a study of business anomalies.

Foremost it is imperative to define business success.  Recognition from associations, funding from investors, few early customers, longevity of the business are not defining parameters for success.  The primary measure of success in the business domain has always been delighted customers.  While this creates a dilemma for early startups, any alternate measure will be misleading.  Product development and go-to-market are the primary drivers with a feedback loop.  Effective product development and customer satisfaction is what differentiates the winners from the masses.

97% of the startup ventures do not survive beyond five years.  Startups are indeed a social and business experiment, where a group of people (founders, investors, employees, early customers) come together with the belief of providing a unique value proposition to the market.  While the intent is noteworthy, the road to success is paved with trials and tribulations.  These challenges are related to market, people, culture and process - very different to the business technology envisioned by the founder.

The opportunity created through technology discovery can be categorized across two dimensions, (i) automating our existing manual systems, i.e. productivity impact and (ii) creating and fulfilling new customer needs.  Finding and offering new mechanism of fulfilling a task is process innovation, which is the field where majority of the startups are playing their game.  While the business opportunities are real, and technology is making it possible, rate of failure of startups are surprisingly high – lending to this study.  Each person will have their own reason and perspective on failure.  Basis the in depth study and analysis of startup failures few critical observations and recommendations follow. 

Product to Market Alignment:  Most startup ideas are shaped through logical ideations with limited ‘real’ market interactions.  The market study is restricted to friends, family and acquaintances, which is over ruled by the entrepreneurs perspective and intellect.  The business need and benefit is not effectively captured leading to conflicts between the product and the market.  With weak market response coupled with the assumption of the right product, the go-to-market is challenged and suspected.  The market strategy becomes the silver bullet and panacea of the problems, with restricted focus on product to market alignment. In place of structured and patient product experiments, impatient entrepreneurs kill their product story over a short span of a few years.

Key Learning: Get the Product Right.  No compromises with the Product to Market Alignment.  Don’t focus on the sales/market outcome until the Right Product is ready.

Quality Obsession:  In the startup space, product is fluid and fast evolving.  Every part of the product, from the initial concept to the creative design is open for change.  The product manager, most likely the founder himself, would architect and micro manage the product development.  He will face the conflict of launching a stable product vs being the first to market.  The hot-seat blinds the founder of the long-term, while he is surviving day to day.  In the need for speed, launching imperfect products creates dissatisfaction in the market, resulting in internal organization chaos across all internal functions and depleting market confidence.  This vicious cycle traps the early stage startup in a regressive system, which eventually causes systemic failure.

Key Learning: In the conflict between speed and quality always lean towards quality.  Customers are demanding, looking for nothing less than perfection.  The first impression can make or break the product and the business.

Benefit to Risk Equation:  Humans are by nature adverse to change.  Technology enterprises expect a significant change in consumer behaviour.  Quantum of change vs potential benefit is a significant driver in product adoption even for free product trials.  Change brings with it potential risk, or downside, which can be actual or perceived.  This risk to benefit equation is a critical driver which is happily ignored under the guise of being a non-quantifiable element of business.  Whereas if perceived risk is not controlled as part of the product communication, market adoption will remain subdued, with no apparent explanations. 

Key Learning: Changing consumer behaviour is imperative in the product innovation space, though it is a time-taking process.  It should be integral to the business strategy.  The product should enable and encourage a smooth transition.

Culture of Trust and Commitment: People play a far more critical role in startups relative to an established organization.  In the latter a fair set of systems are imbibed in the organizational culture requiring the discipline of pushing the wheel, whereas in the former everything is created from scratch, calling for higher dependency on people and their creativity.  People productivity and people commitment is directly correlated to the culture and workspace.  Creating a progressive culture should be high on the founder’s priority, but with a focus on the market and financial stability the People measure is deferred.  The result is a team of few self-motivated individuals leading a dispirited band with the expectations of creating an innovative and ground breaking product.  The People Post Product strategy is an organizational risk.  As to create the business system starting with a blank canvas, the People First strategy is imperative.

Key Learning: People are an integral block in the startup game.  All other strategies and experiments follow.  Keep people delight integral to the business philosophy thereby creating a motivated and self-driven team.

These are by no means exhaustive observations, but rather few business imperatives.  While these are common wisdom notes, in the heat of the game the founders often take hasty decisions under the pretext of innovation.  Constant reference to this article will empower startups to maintain rational decisions in their daily functioning and decision making. 

The road to success is paved with failures.  Entrepreneurs are not afraid of experimenting.  The right set of experiments will guide the business towards its objective.  Random and unstructured experiments will take the team towards a regressive spin.  More important than the business concept, it is the journey towards the destination which will determine success.  It is the responsibility of the entrepreneur to enable a progressive and healthy journey for all the stakeholders.  Business is not magic, but a progression of structured experiments towards the dream. 

Startups are imperative for human progress.  Startups challenge the norm and create the dream of a brighter future.  Startups push the envelope to a new height.  It is these startups which are creating the future.  Higher success rate of these startups will result in a better tomorrow. 

Harish Chawla