As they prepare to start out, all entrepreneurs are sure that they are on to the next big thing since sliced bread. They are also equally sure that their venture would become really huge in no time and that they themselves would be the next Warren Buffet (in case you did not notice, investment guru Buffet has replaced Bill Gates at the top of the list of the wealthy).
Unfortunately, nine out of ten startups fail to make it big. They close down, get bought out, or remain really small forever. Getting bought out is okay in many cases, and remaining small is also not a bad deal. The real show-stopper, then, is the prospect of closing down. What are the most common reasons for startups closing down, and how can you circumvent them?
1 Your idea is stolen
Ask anyone wanting to start out and they are sure to tell you that the key to their success is their idea. All of them believe that their idea is so unique and so ground-breaking that many are afraid to discuss the idea with anyone, least it is stolen. In essence, they fear failure from someone stealing their idea.
You only need to look around to understand that this is one of the biggest misnomers about entrepreneurship. Let us, for the moment, accept that your idea is indeed ground-breaking. Assume that you have also kept it a grand secret and have come out with your product or service. What next? How much time will it take for a competitor to come up with a better product, learning from the mistakes you made? If your product is hot, how much time will it take for someone in China to mass-produce it? If you product is a medicine, how many months before someone right here in India comes out with a generic?
| DARE/ |
| It is not the idea, but the execution that makes the difference |
| Being a first-mover is not always the best. Learning from others who went before you helps |
If you look around, you will find enough evidence that the first-mover or original inventor advantage does not always work out the way it has been advertised. Consider the GUI for today’s computer. It was created at Xerox Corporation’s Palo Alto Research Centre, but was made popular by Apple in their Lisas and Macs. But who really made money out of the GUI? Microsoft, many years later with Windows, and that too after many attempts! While on the topic of technology products, let us look at a few more examples. Who came up with the idea of a portable music player? Who created the first portable music player? Who cares? But who made the most money off portable music players? One of the last entrants in the field—Apple. Who came up with the first cellphone? Motorola. Who is lord of the cellphone business? Nokia. Or is that Apple? Where is Motorola now? Struggling.
The often held belief that letting your idea out is a stepping stone to failure is wrong. It is not the idea, but the execution that matters. And there, you need to learn from the successes and mistakes, particularly the mistakes of others who went before you. Nanos gigantium humeris insidentes (Successful ones are dwarfs standing on the shoulders of giants).
2 You got it wrong
This one is a serious issue and is faced by many startups. You start off with a wonderful idea and after turning your blood to sweat and vapor, realize that things did not quite work out as planned. The limitations could be simple, like you are not able to get components of the exact precision that you want, or staggering, if, for instance, you made a basic blunder in your calculations or assumptions that was revealed only in the later stages. I know of this Indian company that set up a huge manufacturing facility based on published figures of market size. They wanted a 10% market share. A year later, the publisher issued an erratum. There was a mistake in their figures; there was an extra zero! So, here was the company, saddled with a plant that virtually doubled the world’s production capacity! That plant could never produce good results. Luckily, the company has other product lines and has survived. You may not be so lucky.
There could also be market readiness issues or limitations in delivery mechanisms. The entire dotcom bust of the two thousands can be attributed to Internet technologies and bandwidth at the customer end not being ready.
Transporting fresh vegetables used to be a nightmare till a few years back. But with better roads, many businesses are now coming up around the concept of transporting fresh fruits and vegetables across the country.
What is the way out of getting trapped here? Stringent and frequent reality checks are the only answer. At the concept stage, do not make sweeping assumptions. Get your basic figures of market size, technology availability and costs right within reasonable limits (plus or minus fifteen to twenty percent). Cross-check these numbers thoroughly, and more importantly, recheck them frequently.
Remember the fable about the team that drowned because the person who estimated the depth of the river they had to cross measured only along the edges and not at the middle. If your business has come about as a result of some market feedback, like, for example, from a market survey, recheck to ensure that the sampling and the interpretation is correct.
3 Takes longer than planned
Yet another regular in the list of show-stoppers. This happens because of a number of reasons including that the complexities were not fully understood in the beginning. But an even bigger problem is when the founders fall in love with the product and tinker around for ages trying to add one more cool feature or trying to make it perfect.
| DARE/ |
| Work with a clear road map |
| Budget for extra time right at the planning stage |
| Drop features that will throw the whole schedule out of sync |
The first problem is easy to manage. First of all, budget for more time than you think it will take. But how much do you overbudget? Those who have been there and lived through that say that it would be wise to budget for anywhere from 25 to 50% more time than you originally thought it will take, depending on the scope and complexity.
The second part, of going on and on has a very difficult solution. Do not fall in Love with your idea or product. I know that this is easier said than done. But that is what happens. We get so enamored by our own idea that we refuse to let it go. We become its muse and forget the passage of time even as we contemplate ever-so-minor changes to it.
Perhaps we need to learn from Google, which releases its products for use with a beta tag. Google continues these beta runs for ages. For example, Gmail ran as beta for three years from 2004 to 2007! Think of what would have happened if the engineers and founders at Google had waited till all aspects of the product were final?
The way to handle this is to break down your project into clear activities and milestones and (particularly if you have some project management exposure) work out how much slack you can afford to take at each point. Having someone else (a co-founder or even an employee) sound alarm bells on slippages is a good idea.
4 Competitor releases free equivalent
Some time back I was talking to the CEO of a successful IT company. One thing led to the other and I asked him about his past. Suddenly, he went all nostalgic; turns out that this was not his first venture. The original effort died a brutal death when the large competitor he was going to take aim at released a software similar to his for free, just weeks before his planned launch. He was lucky in being able to pick up the threads and start afresh and make a success out of the second attempt.
So, how do you handle this situation if it happens?
Frankly, this is a tough one. The best recommendation we came across was to cut your losses immediately and move on to a plan B, if you have one.
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written by PCN Rao, November 21, 2009
written by Sanjay, November 21, 2009
6. Customer behavior change : Customer requirement changes with time
7. Incorrect time for launching the product
written by Anil Kumar Prasanna, November 21, 2009
Except couple of them all are more based on Growth Capital investment.
Rgds,
AKP
written by rakesh, February 17, 2009
written by ANIL KUMAR, January 15, 2009
The article is quite good and worthy of the effort/gyan provided. I have started a webportal and am in the process of launching it. If you have any like minded people interested in joining me with investment, they are welcome.
regards,
anil kumar
written by Rajesha, September 02, 2008
written by Ravi, September 01, 2008
can you please write to me at raviteja@in.com. Need to discuss the writing project with you.
--
Ravi
written by r k mittal, August 27, 2008
It is really nice article and helpful to me, because i am just planning a small venture to start with. Though we are aware with the many facts written here, but we need a brushup like this to better understanding.
regards,
R K Mittal
written by karthik, August 27, 2008
when the real facts and nicewords put together is a appetiser.
Do keep writing these fabulous articles to better ourself's.
written by Sangeeta Patni, August 26, 2008
I have one thing to add - the ability of being able to attract and retain a team. In India, which has a "job" mindset in college graduates, to find the right guys who are willing to dream along with you, minus the comfort and "prestige" of Big Company frills is a large barrier.
-Sangeeta
written by Rahul Sharma, August 26, 2008
A revision of eye-opener's !!!!!!
written by Pulkit Chandna, August 25, 2008
An insightful and idyllic - both for the mind and eyes - article.I am a freelance writer and have entrepreneurial ambitions of my own. I am about 21, in a law school, and just ran through your advice as a checklist for one of my business plans, an online legal library, and well it was an eye opener of sorts. I see light!!! Anyways, I agree with all of them but I would also think that 12th on that list should be that little bit of peculiarity, personality and self-assurance. So you can throw caution to the wind, not in a senseless way though, and throw the rule book out of the window. I am personally going to hand pick your advice as and when I deem fit and just see how it goes. I hope to hear from you in the comments section.
Cheers,
PC
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