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The Crucial Element Which Startups That Fail Ignore in Their Early Stages

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It’s a statistic that everyone knows.

92 percent startups fail within the first two years. The single biggest cause for this failure (42 percent) is no market need.

Everyone has been talking about these statistics for long. Then why haven’t the odds improved? It’s because the same story plays itself out over and over again.

A person or team comes up with an idea. They spend months – sometimes years – building a proof of concept, debating which features to include and which to leave out. Finally, they launch the working product as a beta-model, call it a Minimum Viable Product (MVP), and dive into building a full product.

But by the startup realizes that what they offer is a solution to a problem that nobody cares about, it’s too late. Funds dry up, layoffs occur, and the startup shuts shop.

How to Avoid Failure

For a successful startup, the MVP lies at the fulcrum.

An MVP is not a product launched before the deadline. Nor is it one with certain features less so they can get added later. It’s an ongoing process where startups refine their product again and again, and never really consider it as finished.

When WhatsApp launched, it had only text messaging and the Last Seen feature. As it evolved, it added the double blue tick, groups, image and video sharing, and so on.

Twitter started without hashtags, @replies or Retweets. Those features got added later. Each feature added made users love the platform even more.

How can you avoid the deathtrap of failure for your startup? The answer is simple – collect feedback on features that users want. The simplest and most effective way to conduct feedback on your offering is sales.

Getting Sales for Your Product

Sales is a surefire sign that your product works. It’s the ultimate proof of concept.

But most startups spend too much time chasing PR or investor funding without checking the viability of their product. The result is often one of three outcomes.

One, the startup sees steep growth and becomes successful. (This outcome is as rare as an outrage-free day on social media.)

Two, the startup gets some traction. The press releases bring in people who either take up trial offers or order the product. But when it’s time to fulfill these orders, everyone passes the buck. This is because founders were so busy with investor pitches and PRs that they didn’t design processes for sales and marketing.

As a result, a weak automated follow up offering the customer a ‘discount’ occurs after his trial period ends. Or a customer whose order gets fulfilled gets periodic promotional text messages. Startups fail to convince customers to buy from them again, and bleed funds trying to get customers onboard, either for free or through discounts. (This is a common scenario.)

Three, the startup gets some initial traction, which dies down almost instantly. This often happens when the market has no need for what the startup sells. The startup tries to fix this by pumping in more investor money. But no sales are a clear indication that the product doesn’t work. (This is the most common outcome among startups that fail within 2 years.)

Successful startups go the other route. They design processes for inbound leads before they allot funds for marketing or begin looking for investors. Such processes ensure that leads get converted into customers. They ensure that customers get high quality after-sales service.

The most promising startups I’ve come across leverage technology to build sales and marketing processes. They use Customer Relationship Management (CRM) software tools to collect leads and reach out to them. They also use these tools to collect customer feedback and check whether issues they raised got resolved satisfactorily.

As a result, revenue begins to flow even before investors get onboard. And with sales as a proof of concept, it no longer becomes difficult to get investors onboard.

Summing Up

Seth Godin points out that this is a way to delay asking customers for payment. Not only does the startup take a hit on its earnings, it also cannot validate whether people want what it sells or not.

Invest in sales and marketing processes along with product development and funding. This will slow down the time it takes for you to go live with an MVP, but will speed up the success of your product. This is the most effective way to ensure that your startup remains part of the 8 percent that succeed in the long run.

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