Nine out of ten startups fail. Failures in these business enterprises are too common that to “fail fast” has become a mantra. According to CBInsights, there are various reasons why a startups fold, such as the lack of market need, insufficient capital, and working with the wrong team.
This doesn’t mean that you should be preparing for your failure post-mortem. Plunging into entrepreneurship is a serious decision as you’re investing money, time and effort. Failing is inevitable but it’s not unavoidable either. Explore these eight tips to protect your small business.
Know how to Tame Intuitive Predictions
Coffee shops and art galleries are insanely popular these days, but if you’re asked to predict their viability five years from now, what will be your basis? In his New York bestselling book Thinking, Fast and Slow, Daniel Kahneman pointed out one mistake most of us commit in predicting the outcome of our decisions: we substitute the task of forecasting with an evaluation of current evidence.
Probably the most important step to guard your startup business is to adopt the right mindset in making decisions. Nobel Prize winner and economist Kahneman suggests taming intuitive predictions when predicting quantitative variables such as profits or growth of a company. “This approach builds on your intuition, but it moderates it, regresses it towards the mean,” he wrote. Regression to the mean occurs when the correlation between two measures are imperfect. If you base your decisions on intuitive predictions, you tend to be overly confident. A rational investor knows that “even the most promising startup have only a moderate chance of success.”
Invest in Market Research
The CBInsights’ recent analysis of failed business ventures found that 42% was due to the “lack of a market need for their product.” While the invention of mobile phones or the development of social media platforms may have proved that you can create demand, these are rare occurrences. You may even attribute it to luck.
Before anything else, do a market research to know whether there is demand for your product. If not, know what the market wants and decide if you can deliver it. Startup business ideas should be based on hard facts and not on anything else.
Mind your Capital
What happens when the gold chest runs out of gold? A third of startup founders cited lack of sufficient capital as the reason why they closed shop. This sounds self-explanatory. The question you should be asking is how to keep your business afloat.
Maintain a credit line whether extended by a bank or your parents. Explore startup business loans, which many banks are starting to offer. Generally, these loans have lower interest rates, longer paying period, and a more relaxed application rules. There are also angel investors, cooperative banks, and crowdfunding.
Choose your Team Well
There are things that you’re unlikely to cover in your startup business plan. Choosing the right people to work with is one of them. You may have a top-notch product and a good startup business funding, but if you’re working with the wrong people, you’re at risk of failing.
However, this doesn’t mean that it’s better to make decisions on your own. Tech-Rx founder Steve Hogan said that having a co-partner can help avoid disharmony, poor marketing, and the wrong team.
In 2013, Everpix shut down. The company was regarded as the “world’s best photo startup.” An editorial in The Verge cited the reasons behind the downfall. The founders “spent too much time on the product and not enough time on growth and distribution.” Everpix also began marketing too late.
Poor marketing is blamed by 14% of founders who had to fold their startups. Without marketing and distribution channel, a superior product is nothing but a useless ornament. It doesn’t matter if you’re distributing your product online or via a physical store, you need to effectively let the world know of your merchandise. Even startup business ideas in your condo such as a French bakeshop, which are visible to consumers, need good marketing tactics.
Put a Premium on Customer Service
Do you know that it requires more money to get a new customer than to maintain an existing clientele? It doesn’t matter if you’ve scored the best startup business idea, if you neglect customer service you’re bound to fail sooner or later.
Founders of startup VoterTide realized the importance of customer service and engagement too late. “It’s easy to get tricked into thinking your thing is cool. You have to pay attention to your customers and adapt to their needs,” the founders wrote in their failure post-mortem.
Always Keep your Focus
One tip on how to protect a startup idea is to always keep your focus. Whether you’ve developed a new mobile app or brewing condo business ideas, it’s essential to stick to your business goals. The founders of defunct startup Intellibank shared lessons they learned: “Focus and simplicity are often more difficult to achieve than building features on top of features on top of features. As a result, too many startups are unfocused.” Thus, it is advisable to have a monthly or quarterly review of your business plan to check whether you’re on track.
Focus is essential for the company as a whole and the team members as individuals.
You are your greatest capital. If you want to know how to protect your startup idea, you should know how to prevent burnout. Unlike an employee, entrepreneurs don’t have a fixed schedule. The work goes even past bedtime. If you fail to manage your time well, you’d end up constantly stressed that can lead to burnout.
Take time to relax and unwind. Virgin Group founder Richard Branson once said that “fun is one of the most important underrated ingredients in any successful venture.”
Failure in startups has become too common that entrepreneurs no longer dread folding early on. Making mistakes is expected, more so if you’re running your own business. However, there are ways to avoid an early failure by learning from others.