Article by Dr Sanjay Bajaj
Success and failure are usually treated as complementary to each other. A lot has been said failure too and one of the sayings which sounds very practical and positive is by Thomas Edison, America’s greatest inventor and holder of over 1000 patents. He said, “I haven’t failed — I’ve just found 10,000 ways that won’t work”.
We do understand that in research, we have to do lot of experimentation, and lot of those experiments do not work. But are the failures in experimentation and failures in business mean the same? If failures are so important, why do several startup businesses fail and never come back again? The studies conducted on startups reveal that most startups rather up to 90% fail and about 70% out of them fail because of three major reasons viz. bad business model, not enough cash, and lack of market interest. Let us look into the reasons for their failure and learn what the new technology startups should do to avoid failure?
Startups are companies or ventures that are in the first phase of their operation or existence and are usually focused around a single product or service. Technology startups, by definition, are those which have new technology or new technology-based product and want to convert this new technology into business. Ideally, a technology startup should have innovative successful science and/or technology research ideas worth commercialization and scale-up. In addition, a technology startup proposal must also bring in a successful, problem solving cutting-edge technology for the first time in the market and are supposed to fulfill the unmet market need or gap.
Because a technology-based startup entrepreneur is, most likely, a scientist or engineer by profession or training, many of these companies have a first-time entrepreneur as the founder and at times uses a business model that is not well established. They usually lack the capital to move on to the next phase of their operation, because many of these companies are initially funded by their founders.
The scope of technology startup ranges from IT-based startups, the so-called dot-com companies to AI-based products, and from much simpler food technology products to technology-intensive space transport vehicle. In recent years most of the startups have been mobile application, website/software and eCommerce companies and the majority of them have failed.
The initial period is very important for all startups because the entrepreneurs need to find investors, develop a business model and business plan, recruit key personnel, work out intricate details like income and share for partners and investors, and plan for the existence in the long run. Many of today’s most successful companies like Facebook, Airbnb, Uber, and SpaceX began as startups and ended up in becoming successful publicly-traded companies. We too have examples of entrepreneurs like Steve Jobs & Henry Ford who developed an idea into a successful business. If this is so, why 90% of the startups fail within the first few years of their launch.
Many startups have a very good business model but fail at the time of scaleup. A lot of research has been done on why they fail but it is all the more important for the startup entrepreneurs to learn from failures of some of them and understand what is required to stand up? These learnings have been summed up into 7 points here with the focus only on technology startups.
1. Right Filler for the Right Gap: As a pre-requisite to be a success, the startup entrepreneur, must have the vision and ability to find gaps in the market and place their product or services rightly. It is always better to build an idea on deep market research as well as obtaining direct feedback from the end-user rather than on personal instinct or feedback from friends and colleagues. This deep market research should assess not only the gap but also the ability and the features crucial to fill in those gaps. While the technology works on science & logic, the market is governed more by the sentiments of the people rather than logic. Therefore, technology entrepreneurs must first develop harmony between sentiment and logic.
The right gap could be the one where no player exists. It could even be the market that already has the customer base but is yet to expand. Uber and Alibaba are excellent examples of the former type while Netflix, Disney+ Hotstar, and Amazon Prime are examples of entry into an expanding OTT market because they were not the first ones to enter into the market. Entering early into the expanding market (e.g. Amazon & Flipkart) has always proven useful because you too get a slice of the cake. However, establishing a startup in an entirely new market, which is not using any similar product or technology, requires a lot of time and/or investment. Therefore, being the right filler and being in the right gap both are equally important.
2. Timeliness: Just like the time gap exists between different geographical locations, there is a technology gap existing between different continents, locations, and nations. An idea acquired from a technologically forward region will not be successful in a relatively backward region and one may have to wait for the market to grow. A startup funded by the founder himself or even by an angel investor, may not have the patience and resources to wait for the market to mature. Therefore, for a technology startup to be successful, it is important to closely follow the market developments and must plan the funding and financials to account for the expected and unexpected delay in revenues.
We have also seen that a product if launched too early, keeps on waiting and another company picks up the idea, starts aggressive marketing, and takes a larger share of the pie. BIGFlix, backed by Reliance, was launched in 2008, but it did not grow much in the OTT services market, even though it had all the backing. Hotstar and Netflix are International brands, entered the market much later, and took over the major market share while BIGFlix remained primarily as a regional player. Therefore, we need to understand the market and time of our startup well.
3. Finance – The Heart of Business: If technology is the nervous system (brain & spine), finance is the heart of the business, which keeps the body running. Lack of funding has been termed as the major reason for the failure of startups. There are several options like bank loan, angel investor, venture capitalists, business incubator and self-financing etc. available and may be considered for raising funding for a startup. Each of these funding options has its pros and cons but which one is going to work and which one is just right is the most crucial decision before one decides to launch a startup. Elon Musk started his first company, Zip2, with money raised from angel investors began his career as a technology entrepreneur and later became an investor himself.
New technology and its application may be difficult to understand, evaluate, and assess for the investors. More difficult is to develop faith that the new technology or the new idea will work and will be adopted by the consumer and therefore it is usually difficult to secure funding from the investors. Self-financing is usually not sufficient to last long unless the startup is backed by another stable business. There is never a certainty of grants and bank loans need collaterals. Therefore, try to secure funding before-hand and make sure you deliver what you promised to your investors in order to get more funds.
The funding options available must be evaluated carefully and we should focus on what we have rather than what we propose or what we plan to get. We should not forget the saying “Man proposes and God disposes”. Therefore, always keep ready a Plan B for survival for the times when the funding is not available and the previous funding has exhausted. At the same time, it is also important to use the available funds very judiciously to sustain survival.
4. Maturity of Technology: Every technology may not always be ready for the market just as it is invented. A new technology, before it is ready for commercialization, has to be fully-grown, has to pass through several tests to obtain certification of confidence (that it is working), all its faults must have been removed, and utility well established. Customers will never buy a product that will not work, which is not stamped safe, which has no perceived advantage and some time which has no style value. We have seen mobile applications that keep crashing as we start using it. There have been examples where people rolled out the technology first with a view to building a product on it, while it should have been the other way round. Rivigo, a logistics startup, is an excellent example of this type.
It is advisable to use tools like Technology Readiness Assessment (TRA) and a five-step Gartner Hype cycle to assess the readiness of the technology for bringing it to the market. In most cases, the innovator wishes to launch the product quickly to be the first-in-market and gain marketing advantage, without being aware that only this promptness is going to become the major reason for the failure of the startup. Soon someone else will copy the product, plug in the gaps, add a few more features, and launch the product. He is certainly going to do it fast because the innovator has already exhausted his funds in the startup launch and now has to look for another investor to improve the technology.
5. Customer is the Boss-FQC Factor: We usually come across this quote in marketing “Customer is the Boss”. For a startup, the customer is not only the Boss but God himself. A customer decides the fate of any new product or technology and therefore a product or service built on customer feedback is more likely to be successful. The sooner we listen to our customers, and develop a “Customer-centric” approach, the earlier we establish ourselves. At times the startup goes in for pilot runs with few customers to assess their response. The customer response can be clubbed as the FQC Factor i.e. Features-Quality-Cost, which determines the success of the startup product.
The customer mainly looks for the features which will fill the existing gaps and if it adds to the style and comfort it good to go. Quality is primarily for the manufacturer to build into the product and manage but the customer is the one who approves it. Cost is the deciding factor determining the acceptance of features and quality worth the cost. If the customer accepts the FQC, the product is likely to be successful provided it reaches out to the masses with proper positioning.
6. Positioning the Right Gap: Identification of the right gap and development of the matching product is usually not enough for success in the market. The new product must be positioned and promoted properly to a select audience based on the product features. Positioning helps the customer to decide on a trial of the new product and conveniences the customer that this new product is what you were looking for. In other words, proper positioning uncovers the hidden demand.
Positioning is designed on the target audience which in turn is developed keeping in mind the market gap and product features. Once convinced, with the features makes up his mind and proceeds to purchase for trial. Many companies go in for campaigns for customer trials. It is said that the “Satisfied customer is the best Marketing”. Therefore, if the trial customers are satisfied with the FQC, they will also start marketing and propagation directly or indirectly.
This is why the product launch and advertisement involve extensive promotion and celebrity endorsement to influence the buyers. The larger the trial buyer base the quicker the product picks up in the market. If there are lapses in positioning and marketing a good product may not pick up. We must remember that good marketing can sell even a bad product, but bad marketing cannot sell even the best product.
7. Executing Plans Religiously: Every startup would always prepare a project plan for the development and promotion of products or services post-launch. More important than a well-crafted business plan is its implementation. Flexibility, rather leniency, in implementation can cost startup very dear. One can expect this leniency from an inexperienced, first-time scientist turned entrepreneur who may not understand the importance of strictly following the business plan.
Many times, funds crunch and other reasons are responsible for this deviation from the plan which may result in the failure of a startup. At times a startup entrepreneur may not even have a well-strategized plan because the entrepreneur is hooked on to the technology and on to arranging investors that he tends to forget the importance of promotion and marketing.
However, some degree of flexibility in thinking should be there because one may have to shift to Plan B, which may be a low-cost version of the original plan. Such Plan B may have to be implemented in a fund crunch situation and can most likely help the startup to survive in the drought. Rigidity to accept the situation may also be one of the factors for a startup to end up in a closure.
These 7 points discussed above does not exhaustively cover the requirements for success of a startup but provides us an overview of what to do and how to think for making a startup to stand up and succeed.
- 1. https://www.frac.tl/work/marketing-research/why-startups-fail-study/
- 2. Nikhil Inamdar, 2020, 7 Sutras of Innovation, Jaico Books, Mumbai, India
- 3. https://www.cbinsights.com/research/startup-failure-reasons-top/
About the Author
Dr Sanjay Bajaj, PhD, MBA is the CEO & Managing Director at Glostem Private Limited, a global science, technology, event, marketing & management organization. Email: firstname.lastname@example.org.
Disclaimer: The views expressed in this article are the author’s personal views and Glostem Private Limited does not hold any responsibility for any information or claims. The information provided in this article is not for medical and/or research purposes.