Six survival must-dos for startups
Today, startups are a leading business model that is driving innovation-led economic growth across the world. However, one of the conundrums in the start-up world is why, despite being a manifestation of some amazingly creative ideas, so many startups fail.
A lot has been said as well as written about the usual suspects or culprits — high capital investment, high taxes, poor sales uptake, low scale-up opportunities, competitive tech-led alternatives, complex or uncertain regulatory environment, price war-led competitors distorting the market and its ilks, all of which are true.
And all of the above suspects or culprits belong to the ubiquitous proverbial gang of VUCA (Volatile, Uncertain, Complex and Ambiguous) and/or BANI (Brittle, Anxious, Nonlinear and Incomprehensible).
However, despite being surrounded by the two gangs of foes, we see that few startup organisations not only manage to survive and generate returns for shareholders on a sustained basis but some also manage to make significant improvements in performance resulting in generating super normal healthy profits.
Survival Essentials
So, what can we learn from the success of a few and from the failures of many so that we can use that as an antidote in case we get beaten by the gang.
While there is a long list of learnings and what-to-avoids that can fill a book, in this article, I will stick to the top six learnings which are based upon my experience and observations.
Ensure capital flow: Lack of sufficient capital has perhaps been the number one reason for startup failures almost everywhere in the world. Often, either there’s no sufficient start-up capital or a sustained flow of capital when it is needed the most.
Also, almost certainly there’s not enough capital for funding losses in the early years.
My humble advice to all those who are looking to start (or turn around) a startup enterprise is to multiply any capital requirement estimates made by consultants and pitch-makers by at least three times and multiply the time required for break-even also by 3x.
For most startups, capital adequacy is provided by the promoter.
Hence, having a firm backup of promoters with sufficient capital also ensures the organisation is under steady and consistent ownership, rather than being one that is constantly changing hands in search of capital.
Notably, my readings of the startup ecosystem tell me that even when a startup is under one set of owners, constantly having to ask for additional capital to fund losses or grow the business can lead to impatience on the part of the promoters.
Hence, the deployment of capital in the right areas to generate returns is also a critical success factor.
Scale up: My learnings of the startup domain bring me to a firm conclusion that scale is an extremely important element for the success and longevity of any startup even when being smaller might give the comfort of “being in better control of things”.
Startups are a scale business.
They need to scale up in terms of product offerings, network reach, technology and the like that too quickly.
Scale gives the cover to weather the storm of occasional failure.
It gives the ability to handle the experimentation of ideas.
A business of size can negotiate better terms with vendors and other partners with greater command than a smaller outfit.
Scale provides that bargaining clout.
Ultimately it is scale that ensures generation of sufficient revenue and cash flows to absorb both fixed and variable costs thereby generating a positive return.
Finally, it is scale that attracts better talent.
When it comes to scale, incrementalism mostly does not work. One must think big and bet big.
For instance, in 2004 a new private Indian airline named Indigo announced an order for 100 brand-new Airbus A320 aircraft.
For a market at that time in India, many in the industry thought, they were plain crazy to be taken seriously.
But it is that order which gave them a running start that saw them sprinting way ahead while competitors struggled or fell by the wayside.
Furthermore, the scale must be accompanied by a sense of some extent of diversification in terms of revenue channels, it must be manageable and it must consider the ability to deploy capital profitably.
Execute the mission: At the very outset, it is pivotal for the startup to have complete clarity on its purpose and mission.
Its business blueprint and its business plan needs to clearly identify the sources of competitive advantage, whether it be on the cost front or through product/technology differentiation or both.
The next step is to convert those advantages into deliverable attributes and make a go-to-market strategy.
Thereafter, there must be a relentless pursuit on the execution of the purpose-driven mission.
The branding and advertising have to persistently promote those same attributes in a consistent tonality. Any deviation from the mission or extra additions to it must be on the basis of watertight reasoning.
Globally, many startups have got off to advantageous starts but landed up becoming overambitious over time, losing sight of their core purpose and mission and their core competence, and consequently losing the plot.
Remember Beepi? A California-based promising startup in the used car marketplace that raised close to $150 million but failed due to poor execution in just about three years’ time in 2017.
My observations tell me that while a startup can have a first-mover advantage, beyond a point, new entrants need to think about strategies and sources of competitive advantages that are not simply a copy-paste of the market leader.
It is not easy to beat the market leaders at their own game unless the market leader itself loses focus and creates the opportunity.
Put people first: Just like in cricket, “catches win matches”, in startups, people create success.
Observationally speaking, no great company is ever built by a single individual. So, in an organisation, philosophy and action of “people-first” forms the bedrock of success.
For the founder/promoter/CEO of a startup that means hiring right and hiring people who are better than them. That means developing and empowering people, that means surrounding themselves with people who really do have the knowledge that they may be missing.
That also means treating people with respect even when terminating them. To put people first, ultimately the founder/promoter/CEO must shift their focus from product to people.
A great example of onboarding the right people at the right time is that of Facebook. Mark Zuckerberg made the decision to bring in Sheryl Sandberg early on.
That was a difficult thing to do which took tremendous courage as they are very different personalities.
However, this move was directly correlated to Facebook’s phenomenal success.
Focus right: In a startup, indeed every penny counts. A penny saved is a penny earned.
Towards the same, it is crucial to continuously keep an eye on what moves the needle on the cost and revenue sides.
Spending a lot of time on cost and revenue initiatives that don’t really make much positive impact or pursuing some types of ancillary revenues that hardly move the needle takes the time away from focusing on the cost and revenue drivers that really matter.
Consequently, it dilutes the organisation’s ability to focus on winning the core revenue.
Similarly, on the cost side, a relentless focus on minimising costs yields great returns. Manpower costs consume a large portion of the total cost in most startups.
Therefore, it is imperative to rationalise and optimise the workforce. I have observed that having fewer but fairly paid and more motivated people is better than having an underpaid and overstaffed workforce.
And most importantly, in bad times, whatever happens, it is critical to pay the staff. At the end of the day, staff are not a cost centre, they are the revenue generators and are the ones who keep the startup ship moving forward.
Build leadership capital: Finally, the quality of leadership matters the most in a startup. And the promoter/founders must give the professional management, the space to manage.
An able leadership provides the control and guidance mechanism to the startup ship, in the right direction.
As powerfully demonstrated by some notable business leaders, a company’s culture flows top-down.
Leaders need to leave their desks and visit the frontline regularly, without making any announcements so that they are able to check the pulse of the people and understand the ground realities.
They need to listen to customers directly so that they can see things from the customer’s perspective.
They need to set examples by leading through values and principles rather than by mere rule books.
In doing so, they send a clear and strong message of honesty of purpose and teamwork which further goes a long way in motivating and generating loyalty plus a sense of shared mission amongst the staff.
People need to look forward to coming to work each day, that is what results in innovation, transformation, the delivery of excellence and superior company performance, all of which are cultural aspects for which startups are known for.
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