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But, why do startups fail?

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This is my personal opinion on why startups fail. Some of the points mentioned here could be unique to India as this is based on my personal experiences, of friends and family and those of people who came to me for guidance.

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But, why do startups fail?

  1. 1. In this presentation I have tried to share the various things that could cause a setback in your business. I choose to use the word “setback” as it is a failure of the process and not the business itself. Some of the things mentioned here could be more relevant to India and the business environment here. Everything mentioned in the presentation is my personal opinion, and I am no God, so if you find something that you think is not true, write to me and help me correct myself. - Harbinder Narula / mail@harbindernarula.com
  2. 2. © harbinder narula, 2014 Market Research Failure •  Some startups do market research but get blinded to the market feedback because of their undying passion for the idea that they have come up with. •  Customers today have easy access to information. You need to create a compelling reason for them to buy your product. You have to know your customers and figure out if your product is a “nice to have” product or a “must have” product and then market accordingly. •  Need to know if it is the right time to launch. Many startups who have brilliant ideas fail as they may be too early for the market. At times, it is not too bad to be the second entrant.
  3. 3. © harbinder narula, 2014 Business Model Failure •  Most startups assume and often over-estimate the success of their marketing. The numbers are based on their hopes than being based on scientific principles and market realities. •  It is important to work on “Cost Per Acquisition” and “Life Time Value” of the customers in their business based on realistic parameters. •  Many times, specially in case of businesses never launched in your own country, you base on assumptions on other overseas markets ignoring external environments present in the home country.
  4. 4. © harbinder narula, 2014 Poor Key Management Team •  Co-Founder –  It is extremely important yet very difficult to find a person with complimentary skills who understands your business, shares the same passion (if not more), sees in the same direction as you, is as committed as you are and has the skills you require. Most of the time, startups fail as Co-Founders fall apart. •  Weak Management Team –  Finding the management team is also as important as choosing your co-founder. Many people may jump on board for not the right reasons and without much relevant experience.
  5. 5. © harbinder narula, 2014 Not Hiring the Right Team •  Hiring experienced and well reputed names for your startup verses fresh talent with fire-in-the-belly is often a choice that becomes an issue while kick-starting your business. •  There is no right formula and answer to this. There are enough examples of both the options succeeding as well as failing. •  The challenge is to know your business and be very clear in setting the teams expectations as well as managing your own expectations on deliveries, roles, monies and equity (if involved) before you begin.
  6. 6. © harbinder narula, 2014 Failure to Retain Key Employees •  It is a general belief, and mostly true, that in a startup one works harder and paid lesser. Most employees in the stealth mode are hoping that the company will grow exponentially very fast and they will get rewarded handsomely. But, this often does not happen fast enough. During this gestation period it becomes a major challenge to retain the good people and keep them motivated. This is a major reason for product developments falling apart. •  Some companies during their startup stage focused on creating a unique culture and develop a bond nurturing the feeling of belongingness to be able to retain people. There is no right formula, use the one that works for you.
  7. 7. © harbinder narula, 2014 Product Problems •  There are usually two problems that happen related to the product, and both these are contradictory, but both lead to failure. 1.  Failure to develop a product that meets the market need. Many companies fail to achieve the Product / Market fit. 2.  Failure to launch on time because you only want to launch with a perfect product. It may sometimes be wise to launch a product and then make revisions based on market feedback than to just keep working towards perfecting the product based on your own whims and fancies.
  8. 8. © harbinder narula, 2014 Demanding Customers •  During the startup stage, your customers know that you are small and their business is extremely important for your growth and sometimes even for your survival. They often become more demanding that they would be with a company in a more mature stage of business cycle. In fact, most likely they have chosen you for this reason. •  This situation creates tremendous pressure on the founders and the employees who may be directly working on such customers’ projects and often breakdown. •  Management team needs to create a balance that is sustainable.
  9. 9. © harbinder narula, 2014 Failure to Navigate Bureaucracy •  In India, though we live in a digital age, has a lot of paper work, even for something as simple as getting a mobile SIM card. •  Starting a company is very easy, but only as long as you have a Chartered Accountant helping you set up one. •  Breaking into large corporate clients and government sector may need a lot of lobbying. I recommend every startup entrepreneur to set up a strong advisory board relevant to your business, and this may not necessarily comprise friends & family. This board should be able to advise you and open their network for your business.
  10. 10. © harbinder narula, 2014 Running Out of Cash •  It is a key role of the CEO and CFO ( if you have one in the beginning) to know at any point of time about how much cash is left in the bank and whether or not it is enough for the company to reach the next milestone. •  It is important for the founding & management team to know that valuations of a startup usually do not change with passage of time. It is more likely to change with achievement of milestones set. •  It is important for the management team to know when to hire and when to spend on marketing, and never take these calls out of frustration.
  11. 11. © harbinder narula, 2014 Scaling Costs a Lot •  I have often found that it is not so difficult to start a business in India, but it is very difficult to scale the business. This could be for various reasons: –  You need a lot of money to scale, whether it is to put feet on the ground, create a reach through marketing, attracting the right talent, paying for the high real estate costs etc. –  Also, Cost of capital is often high and is not available easily. •  Eco-system is still evolving. Unlike the silicon valley where some founders of evolved companies have support startups because they genuinely do not want to see a cool idea die for lack of support, in India we hardly see such stories as it is mostly a pure financial decision based on short term return expectations.
  12. 12. © harbinder narula, 2014 Family Support •  Remember when you quit your job to become an entrepreneur, “you” are doing a startup and not your family. Often lack of immediate revenue due to long gestation periods become tough on family and the entrepreneur gives up to financial pressures. You can avoid this by making it a joint decision of your family before you make a beginning. In todays age •  In most middle class families, a good job is often considered a more respectful professional choice and an accepted parameter of success. In my opinion, I think entrepreneurship as a professional choice becomes more difficult with every passing year and the best time to begin is when you have nothing to lose.
  13. 13. © harbinder narula, 2014 mail@harbindernarula.com www.harbindernarula.com /harbindernarula /harbinder /harbinder @harbindernarula /harbindernarula.com

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