Building a startup is not fun in a country like Pakistan where there is lack of funding, few success stories, and few entrepreneurs who have the experience of building a successful product based B2C (Business to Consumer) IT Company. It is a common adage in Silicon Valley that 90pc of startups fail and many research reports also prove this perception. To reduce the chances of failure, you have to avoid those reasons due to which startups fail. According to different researches these are the most important reasons.
- They run out of cash
Even in the western world, where getting funding for your company is easy, companies fail because they run out of cash. Inadequate cash flow does not only mean that you ran out of cash because of you burned out all the money. It also means that you were unable to manage your cash flow cycle. The b2b businesses are usually on credit so they usually get the cash by second or third month in their payment cycle. So you have to plan your cash flow according to the realities of your respective market and country e.g. in Pakistan, after angel investment, no series A or series B funding is available. So, plan from day one about how to secure funding from abroad just like the successful home grown giants did e.g. zameen.com or Cowlar or bookme.pk. One of the very effective tips for securing international investment is to visit international startup events e.g. startup Istanbul or RISE in Hong Kong, etc, and network with international investors there. The more exposure you get, the better will be your chances of getting the funding. Founders must also participate in international startup competitions and pitch there to perfect their pitch and get maximum international visibility.
- They built a product nobody wants
The second most important reason why startups fail is that they built a product which nobody wanted. They thought that the customers would love their product but nobody loved it because that love was only a perception of their brain, however, their customers perceived it differently. Even in big corporations sometimes innovations fail because the corporate managers are unable to understand what customers want. They use lots of market research data and pay hefty sums to market research organisations but ultimately they fail because in primary research like surveys, etc, sometimes they miss an important customer perception. Interestingly, research tells us that while filling up a survey form, customers think rationally about the perceived benefit of the product while making an actual purchase decision they think momentarily based on their gut feeling. So sometimes, customer behaviour can differ from what they express in survey forms, questionnaires, etc.
That is why famous startup advisors advise not to be on stealth mode i.e. building your product secretly and then presenting it to your potential customers. And that is what the builders of the famous business model canvass and MIT’s disciplined entrepreneurship tool box also suggest that you build your MVP or MBVP (Minimum Business Viable Product), take it to your customers, see their response and then progress forward because the true mettle of the product can only be tested when it is in the battle ground of the actual market. You may start small but see the response, target only one niche and then move ahead. That would also help in getting you the investment as no investor is going to give you his hard earned money until you will not show him some real numbers.
- They are not customer centric
Customer centricity is the key for success which many startups seldom remember. Many of them are product centric that what they are offering to the customer is their USP but not customer centric that what the customer actually wants should be their USP. That is one of the major reasons why E-commerce in Pakistan has not matched with its true potential. Alibaba, the Chinese e-commerce giant is a classic example in being an excellent customer driven company. When Alibaba started, there were also other players emerging in the field of e-commerce. But Alibaba only won the battle because it was customer centric.
Chinese E-commerce customers were also like us in the early 2000s when the E-commerce slowly started gaining momentum there. There were payment problems; they were not ready to trust the seller, nor did they want to pay until they have not received the product and have not seen it actually. So Ali Baba made an intelligent move; instead of cash on delivery they introduced an escrow service according to which the payment was not transferred to the seller until the buyer had not physically received the product and was not satisfied with its quality. On the contrary, in Pakistan they don’t give you the sealed parcel until you do not hand over the money no matter whatever is there in it. Secondly, nobody cares here about a negative customer review. At Alibaba in China, they used to shut down stores which had a negative review. If there was any negative review on any product, Alibaba would give a heavy discount on your next order or even give that product free to the customer.
In Pakistan, the response of a typicale-commerce store is the opposite. I once ordered a bundle of trousers from Daraz.pk; the colour of those trousers got removed after first wash and they got ripped off in one month. I also gave a negative review on their app. Ironically, they are still marketing that product and it is appearing in their advertising campaigns. The result? They have lost a customer for his entire life time value.
Secondly, the retail experience in China was never as exciting as it is in the West as most of the departmental stores were either managed by real estate owners or the government. So, they introduced a chat messenger through which customers could bargain in real time with the sellers. To settle any disputes between buyers and sellers, they appointed agents who were the final authority in any dispute. Another interesting feature was to show the live product through web cam by the sellers to the customer to ensure trust.
Thirdly, alibaba started giving free giveaways such as a bear or a key chain in the online parcels to attain customer satisfaction and happiness. The result is that now China’s e–commerce market is larger than the US as percentage of the total retail market size.
- They are not focused
A startup is not meant to be a jack of all trades. It neither has the financial nor the human resources to focus on many market segments. Rather it is meant to be focused on its particular niche. Companies which expand too fast and blur their focus also tend to fail because in the end they are providing nothing to nothing; no USP to no unique customer segment. So, the first and foremost lesson is to focus on your niche and get traction there instead of an all focus. When you will start getting traction in your niche only then you will be able to expand to other market segments.
- They have the wrong business model
According to the research by the data marketing firm FRACTL, out of 200 startups, 51 stated that they failed because of the wrong business model. When your idea is completely new, you need to figure out who is your existing customer and how will you make money from your idea and how much money can you make from your business model. Some of the common business models include subscription pricing, selling upfront, advertising etc.Right business model is imperative as you have to reach profitability at some point in time and if you are losing money without any viable way of earning, even your investors would stop giving you money. So, wrong assumptions can lead to a disaster. This is particularly true for Pakistani startups where funding channels are already very weak.
Along with these factors, other reasons for startup failure are wrong team, product or technical issues, not enough traction, customer development issues or a disharmony between founders and investors. When founding your startup you need to take care of all these things to take off your startup from infancy to stardom status.