Running a product startup? Try to avoid early stage risks

startups-failureStartup failures stories are all too familiar, even cliches – especially to those who are working in this ecosystem. When talking of entrepreneurs’ failure stories, people often relate them to the obvious ‘money deficit’, but surprisingly, running out of money isn’t only the root cause for the death of any company – its always more complicated than that. Especially in products startups. In product start ups – be it technology or any other area – its not necessary that innovation always wins, it however does play an important part, but even the greatest ideas are always susceptible to ending up in trash.

As discouraging as this may sound, ‘startup failure’ is a never ending debate. But there’s a light at the end of the tunnel for those beginner entrepreneurs, if they work on to avoid the following few mistakes:

Wrong Product – Market Fit

Nothing could be worse than having a little or no market at all for the product you are building. This often happens when a startup doesn’t do proper research and comes up with a product haphazardly. Make sure you aren’t ahead of your market by a few years. Its not necessary that a successful product in the US market would do great in India as well. For example PayPal has recently launched PayPal Beacon, a technology product which enables more fast/efficient payments at offline stores. The company has launched it in US and European countries, but not in Asian or African markets. Why? The most suitable reason would be the uncertainty and immaturity in markets like that of India and China. The product might come out in the future, when the market becomes more organised and promising, but this certainly isn’t the right time to do so. So always study the market and understand that would you be able to create enough value proposition, or a compelling event, to cause the buyer to actually commit to purchasing ?

Running out of cash

Insufficient funding, for product development and inability to raise seed capital is yet another problem why startups at their early stage fail. Relying only on FFF, or Friends, Family and Fools for extra capital is an outdated concept as this usually ends up in compromising many things which might affect few high growth potential startups – even if they manage to sustain.

Talking of his experience with startups, Prajakt Raut, VP at Indian Angel Network said that, enthused by their deep passion, startups often expect things to happen sooner than they would, and expect to achieve their goal in lower resources and costs than it would. “A startup should never underestimate the cost and time that it will require to meet the milestones.”

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Too little money could be a significant roadblock in taking your startup airborne. So pre-plan your budget as per your goals, because short with funds could lead to no/very-low product development or even death of the startup.

But luckily, there are a number of new ways to obtain early stage funding. Other than accelerators, incubators and other private angels, crowd-funding has become a credible option recently.

Business Model Failure

Early stage startups are often quite optimistic about their product and the real play of customer acquisition. Given their inexperienced nature, they believe that they will build such a unique/useful product, or service, that customers will beat a path to their door – but not everyone turn out to be a Zuckerberg. In many cases the cost of acquiring the customer (CAC) turns out to be higher than the lifetime value of that customer (LTV) – which eventually leads to the death of a startup.

Moreover, a startup should always reach out to different people and talk about its product for validation. “A lot of product startups build the product without much customer inputs.” believes Ravi Trivedi, Managing Partner at Srijan Capital, who thinks that validating a product with several customers is a very necessary step before launching a product.

Taking random peoples’ input helps in understanding the shortcoming that you, being the startup owner, cannot see. An article about ‘Ideas are like Rabbits’ could be a good read to understand why one should talk to many people before launching starting up a business.

Poor Management Team

Often ventures die not because of the product failure but because the team was not competent enough to implement or to handle the complexities of scaling up from beyond the idea stage. You choose a strong management team and you could prepare yourself to avoid the above mentioned mistakes.

According to Prajakt Raut, while working on team management a startup should name one of the founders as its CEO. “There has to be one person who is calling the shots and where the buck stops.” however, if there are 2-3 or more founders, each one with an equal say in the direction and decision-making, it could lead to chaos.

First time entrepreneurs should always reach out to advisors, mentors and consultants or experts who could help them in their journey.

Other product problems

You start up with making a product but in the end it turns out that your brainchild fails to meet the market’s needs – Failure! This can either be due to a simple faulty execution or it can be a far more strategic problem. A weak management team could also be the reason behind ‘strategic failure’. In that case, revise the above step.

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Most of the time the first product that a startup brings to the market won’t meet the market ‘s need. Or the startup itself is on its way to solve a “latent need”, that is creating a new/different consumption habit – which is “more of an art” according to Ravi Trivedi,Managing Partner at Srijan Capital. In that case revise the product to make it fit right in the market. “Solving a latent need is about iterating till you get the product-market fit. How do you take feedback from market, and build something that will become a daily habit.” added Ravi.

Positioning and Sales Pitch

Often inexperienced startup founders fail to recognize the importance of positioning and communicating that pitch well. Since there is a lot of subjectivity involved in positioning the brand and messaging, it is important to test various options before investing all marketing moves behind one option.

‘Big Bite’ – a failure Case Study? Few years ago new brand of packaged burgers was launched under the name ‘Big Bite’. It was an awesome product and priced just right. But, it was actually a mini snack… not actually a big bite. However, when consumers tried the product, they were quite disappointed at seeing the actual size of the snack. Why? Poor sales pitch, and a false message. A company should always deliver the right message, and when talking of a startup – one can lose all the credibility for good.

“I have seen most of the startups being opportunistic rather than working with a focused approach.” added Nagaraja Prakasam, Angel investor and mentor. “Since most of our startup founders are from tech background the thinking is ‘build they will come’ rather than understanding the pain and providing solution for it.” According to him, startups should try to bet on everything that moves and hoping that at least one will succeed.

“One of key challenge with product development Start-up’s is development speed which is a critical survival factor for them. Other challenges are leveraging the skills of the founders and team, global expansion(Indian consumers early adoption and acceptance of new products is very poor compared to the global consumers), low bandwidth to engage with suspect and prospects, poor UI and UX, finding the first customer who could go out and share the product experience. Honestly its highly challenging to sustain in Indian product ecosystem” believes Vijay Kumar N.R.R, founder at Aequitas Global and startup Mentor.

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  • Avinash

    Another way of looking at the product failure is to say that the product designed must not be easily copied and launching a duplicate version by competitors mustn’t be easy.