Last week, the Department for Promotion of Industry and Internal Trade (DPIIT) of GOI announced that it has recognized 28,979 startups till March 1, 2020. These startups include both the Technology Startups and non tech startups as well and enjoy tax and non tax benefits provided by the GOI as part of the Startup India Program. According to this report from NASSCOM, India is the third largest hub of Technology Startups in the world. Not every new business startup though gets to the level of a successful business.
With more focus on innovation and growing world economy, more and more young students and technologists are now getting into the spirit of entrepreneurship. They are ambitious and ready to put in the hard work and effort needed to offer the world a new product/solution. But, they don’t always succeed in their goal. In fact, many of them often fail. A popular belief backed by some industry wisdom is that 90% of the startups fail. Majority of these failures are due to the founders naivety and/or lack of a proper business plan. It’s important for new businesses to contact a trademark lawyer otherwise they could be leaving themselves vulnerable to the danger of somebody stealing their idea. How can you hope to sustain a successful business without considering the financial aspect of things? Whether it’s a loan or Essential Checking that you’re in need of, investigating the available services of banks for businesses is always wise. In this article, I am going to talk about four steps that can help make an entrepreneur achieve his/her goal.
Following four steps can help Entrepreneurs turn their startups into a successful business. These steps sound like common sense to any seasoned business leader. Yet, the proportion of startups failing shows that new entrepreneurs need to get the basics right to taste success.
- Solve a Real Problem
- Identify the Customer/Market
- Have a Plan for your Business
- Watch where you are going
What Problem are you solving
Generally, a new business comes up to solve a problem. The problem might be either well known or it may not be that obvious to people. If the problem is well known, the startup needs to find out if there are already existing businesses that are working on that problem. This will help the startup understand how much competition its product/solution will face. It may also help understand if the startup can tweak its own product/solution to cover an angle not covered by the existing offerings in the market. This will avoid the competition and may the startup establish itself as an innovative company. The startup also needs to explain to the potential customers (suffering due to the problem) about how it’s product/solution will solve the problem and create value for them.
In case the problem being solved is not well known or realized by the consumers yet, the startup is possibly on the way to create a new market segment altogether. If a startup is in this bucket, it means the founders have already done some research and study. The startups so created will enjoy the uncontested blue ocean market. For instance, when the smart phones came up, they combined features of many different gadgets into one single magic brick. This magic brick created a whole new market for itself. The crazy growth of smart phone market has shown that the world needed the solution, but did not realize that it did until the solution became available. In one of my articles, I have talked about the Blue Ocean Strategy. It can be read here.
Who is your Customer
It is needless to say that customers are the most important part of a business. So, once you have identified the problem you are solving or a novel solution you are developing, find the potential consumer base for it. In case you are solving a known problem, it is generally easier to identify the potential customers. But, in case of a solution for an unrealized need or problem, it will take more efforts. Startups conduct market research to understand different traits about their potential customers. To begin with, here are some questions that can help understand the potential customers for an offering:
- Who would like to use it?
- What is their estimated number?
- How badly do they need the solution/product?
- Would they pay for it?
There are resources available on the web that provide market research reports (sometimes some are free). Explore the open data resources like US governments open data set and/or Open Data Platform of GOI. These data platforms help understand the sector/domain in which the startup wants to work and will help as a base for understanding the customers and their needs, better.
Do you have a Business Plan
Once you have identified the problem you are solving and assessed the potential customer base and the market, it is time to detail out various aspects of how you will run the business. A business plan is a formal description of your business and defines the road-map for running it. This type of plan is the perfect opportunity to set out a firm path for your business, and it is the time when you can make some important decisions, like whether you want to create a free LLC, with the help of places like Inc Authority (https://www.incauthority.com/why-is-it-free) further down the line. By setting up a business plan, you can weigh up the pros and cons of each decision. Out of many startup founders I have spoken to in the past, very few had an understanding of the business plan. A business plan covers the operational and financial aspects of the business.
There are various formats available for creating the business plan depending upon how detailed you want the plan to be. But before jumping to the business plan, it is better to get various aspects of the business clarified in your own mind. One of the tools that helps you visually elaborate your business idea is the good old Business Model Canvas. The nine elements of the BMC channel your thinking to cover important aspects of the business. The BMC should be used in the initial period of the business. By defining the nine elements, the very foundation of the business is defined. Once the BMC is done, it is time to elaborate them in the business plan along with the expected milestones.
Image credit Pixabay.com
In some encounters, I have seen the founders getting puzzled by a question from the potential investors on the Exit Strategy. This question seeks to elicit response of the founders on M&A (mergers and acquisitions). Exit strategy questions are generally posed to mature startups that have seen some success. It helps the investors understand what are your future plans about running or selling the business.
Do you see where you are going
It is very important to see where you are going. The well known strategist and management consultant Peter Drucker once said:
You can’t manage what you can’t measure.
To understand the health of your business, you need metrics. Businesses define metrics to track their progress based on the goals defined in their business plan.
Business Health Indicator Metrics
It is important that the identified metrics should be able to indicate the true health of your business. Many a times founders are misled by vanity metrics. Vanity metrics are data points that give you a feel good about your business, but are not actionable and do not show the true health of your business. For e.g., if you are running an eCommerce business that uses a mobile app (like the Amazon or Flipkart app) developed by your company, tracking the number of downloads of the app is not a true measure of the health of your business. Even the number of users registered on the app is not a true measure of the health of your business. But, if you measure how many times a certain user accesses the app and how many times his/her search for a certain items culminates into actual product sale, it will indicate the true engagement of the user.
You need to define metrics that can indicate the engagement of your customers with the business. Define what is the core interaction or core activity that the customers are supposed to carry out for your business to be profitable. Capture that activity in the form of a metrics to understand how business is doing.
Lead Indicators For Saving Time
Time is the most scarce resource in the world. For the startups, it is even scarcer. Every month lost in course correction may make the difference between success and failure. In traditional setup, most of the metrics used by the management are ‘Lag indicators’ which are available after the action has completed. These indicators are easy to measure but hard to influence. On the other hand, the ‘Lead indicators’ refer to the indicators that are available while the action is going on. They are hard to calculate, but, easy to influence.
The lead indicators help a business course correct while on the path and not after reaching the destination. Like most of the Lag indicators (e.g. Customer Acquisition Cost), Lead indicators can’t be defined using a common methodology or principle. Every business leader need to devise the lead measures specific to his/her business. The topic of lead versus lag indicators can’t be explained in a paragraph. So, for the interested readers, I would recommend the book: 4 Disciplines of Execution. You can find more about the book here.
For new entrepreneurs, running a startup is like getting into an uncharted territory. It is a high risk career path and the chances of failure are high. There are myriad factors that can scuttle the journey. But, with high risk come big rewards. The steps discussed above can help draw a map so as to anticipate the risks and be in better control of the business. Remember, without a map you have no idea where you are.