There are many startups that failed because the customer had that problem but he was not willing to pay enough for that problem
Startups are a little different than traditional businesses. In traditional businesses, usually the customer pain-point has already been solved, you usually use massive advertising techniques, cheap pricing, a slightly better USP or better sales techniques to sell the same product to your customer with a little differentiation from your customers. But startups are a little different. They demand a recipe of little madness and belief in your own. So, a startup is a little more risky compared to a traditional business.The startup genome report coauthored by researchers from UC Berkley and Stanford tells us that 90pc of technology startups fail every year due to various reasons. In Pakistan, we can see many examples of failed startups which had a very nice idea but they failed to take those ideas in a systematic way due to which they failed. MIT (Massachusetts institute of technology), which is the world’s number-one university according to QS rankings, conducts a global entrepreneurship boot camp every year in which they teach you the systematic way of launching your startup as they claim entrepreneurship is not genetic or personality based.
Everybody can be a good entrepreneur if he or she follows a systemic way of launching a startup. Here are the eight steps of to take your startup from idea to execution stage in a planned way.
- Define the problem or the pain point of your consumer
The first step to hatch out your idea is to define the pain point of your customer and how you are going to solve it. If your product solves a particular problem of your potential customer and that problem is important enough for him that he will pay for your product, only then your startup can become successful. There are many startups that failed because the customer had that problem but he was not willing to pay enough for that problem.
Makistra, a Pakistani startup which aimed to provide virtual 3D makeup services to salon owners failed, because, according to one of its founders, the salons were not ready to pay enough for the product. Similarly, according to an online portal, Interacta, a Pakistan based application providing interactivity to TV shows and other audio visual programs, is now looking for customers outside Pakistan as Pakistani customers were not responsive enough to their product.
- Idea validation
The solution to this problem is idea validation which is the most important thing for any startup. As the startup is a new venture which has to build its own niche in a market which rarely exists, it has to be very careful about whether it’s products will be liked or not. That is why you need to “validate” your idea by talking to those people who are the “potential customers” of your product. The simplest and easiest way is to go out and talk to your potential customers. More specifically different ways of idea validation e.g. talking personally to your customers, filling up a survey form can be used. You can use methods of primary market research, secondary market research to further validate your idea. But your idea will only be fully validated when you will build a MVP (minimum viable product), take it to the market and have some paying customers for your product. Only then, the investors will start putting trust in your product and give you some seed investment.
- Gain relevant experience
Gaining relevant experience is the third most important factor while starting your startup. Different markets operate in different ways and off course, if you are working on a completely new idea things can be difficult than you but still then you can try to gain experience by working in the most relevant industry. For instance, if you are going to launch an ecommerce grocery store, you can work in a brick and mortar grocery store to understand customer’s purchasing behaviour, inventory turnover dynamics, margins and vendor management tactics. Or alternately you can have an internship in an e commerce company to understand online buying behaviour of people and logistic dynamics.
When we started our trading business, we had to bear loss for our first shipment because out of all the items which we imported, one item had very high margins but almost non-existent demand. Our inventory got stuck and the end result was that we had to sell that item even less than the import price to recover the cash. The only reason for this mistake was a lack of experience due to which we did not understand the demand patterns of the market.
Along with gaining relevant experience, you should also research market dynamics e.g. industry growth rate, total value of the industry, how the market works, credit dynamics etc.
- Build your customer persona
The other most important thing is to answer this question is who your customer is. You build your target customer persona and base your whole marketing strategy based on your ideal customer’s persona. Customer persona is basically to establish the portrait imaginary ideal customer and portray what is his life style, interests and everything to better understand his interests and needs.
Developing your key metric based on the available data is the last but the most important thing which you need to do as without data you be actually business blind
- Business a business plan
A business plan is vital to any business be it a traditional one or a startup. A business plan is basically a document which clarifies all the dimensions of your business to yourself as well as relevant stakeholders e.g. investors, banks, mentors, etc. There are many formats available for building a business plan but the key things to include are the pain point of your customer, how your product solves that problem, how big is the market opportunity, who are your direct or indirect competitors, what your product costs to you, operational expenses, product pricing, and how much the margins will be. You can build a sample profit and loss statement or a cash flow statement to show a rough picture to the relevant stake holders.
- Build a market plan/go to market strategy
Along with this, you should also build a marketing plan/go to marketing strategy about how to market your product. You should understand the nature of your product and how to design the right marketing message or sales strategy to reach out to your customer. Along with general sales tactics, every industry has got its own sales or marketing tactics about which you should have a knowhow. Depending upon your budget, you should optimise your spending, among sales, marketing, industry events and other efforts based on the available knowledge which you have about the market.
- Gather the right team
Buildingthe right team is as important as the idea itself. In fact it is more than the idea itself as the sometimes the idea changes or you pivot to another slightly different business model but the team and the execution style does not. Research at MIT suggests that the team and the execution is more important than the idea so you should always try to build a balanced team consisting of people from both the technical side who know how to build the product and the business side who understand how to sell the product. LUMS Centre for Entrepreneurship’s director, Khurram Zafar, puts a lot of emphasis on building the right team and attributes one sided i.e. only technical or incomplete teams to be one of the major factors of startup failure in Pakistan.
One the major factors people want less partners in Pakistan is that their share will be reduced and they will earn less money but they should understand this thing in the startup world, things work differently. If you are able to scale your startup at a massive level, even less would mean more. Jeff Bezos of Amazon and both google founders, Larry Page and Sergey Brin, have less than 20pc shares in their respective companies but still they are billionaires. So, you should not worry about this thing.
- Establish KPIs
Developing your key metric based on the available data is the last but the most important thing which you need to do as without data you be actually business blind. You need to know what will be the cost of acquiring each customer i.e. cost of customer acquisition (COAC), Customer Life time value (CLV) which is roughly how much each customer contributes in revenue to your brand throughout his entire relationship with your brand and other important metrics about your startup e.g. customer retention, churn rate, etc. You can google them to know more.
After taking all these steps, if you will launch your product, you would have actually reduced the chances of failure of your startup and increased the likelihood of success to manifold.
