Start-ups make or break
Founder, Director of Avaali Solutions Pvt Ltd, Ms. Srividya Kannan shares her perspective to Dataquest on why startups make or break.The article was carried out in the online version.
Why some startups succeed and others fail? A question every wannabe to seasoned entrepreneurs to VCs ask often times. The answer is not that simple, a combination of factors make a startup or break it.
An old adage might serve as an inspiration for all the startups. It says, “Rise and rises again until lambs become lions”. As always, feelgood quotes are like sugar quoted pills – once the motivational sugar dissolves, the realities kick in. The last couple of years, the entrepreneurial bug has hit the Indian shores big time. Buoyed by the eCom boom the air is riddled with startups, but a good deal of start-ups just creates a buzz and goes into oblivion. While we see enthusiastic debates and conversations from both the Government and the VC community, time is now for us to ask the critical question- why some startups fail and some succeed?
STARTING PROBLEMS
At the fundamental level, a broader answer would border on perspectives like a failed startup tracing its etiology to the founders’ inability to draw up a short-term and longterm sustenance road map or a lack of vision and mission statement. For instance, we have heard stories of many startups fizzling out in just 12 months, either losing the initial capital pooled in by founders or losing the investor confidence.
Quips Rajeev Agrawal, CEO, Innoviti Payment Solutions, “In my opinion, the two most important attributes that define startups success relates to focus on gross margins and customer orientation. Irrespective of the size or the quantum of funding, if the business model does not factor in the gross margin, then it’s a flawed model. This is one area lot of entrepreneurs miss out on. Second, one need to have a solid customer orientation, any disconnects here will not augur well.”
A Deal Street Asia observation sometime back said, “There is hardly any systemic data on startups in terms of how well they are doing and how do they compare”. What it leads to is the lack of success benchmarks or one is constrained when it comes to the appraisal of the startups for lack of key measurement parameters.
A LetsVenture- Axilor survey (a survey was done with 532 early stage startups — between 18 to 24 months old) revealed that “75% of startups that are still in ideation or beta, believe that funding is a primary challenge when they should actually be spending time on customer validation. About 80% said a funding round would be a major milestone, again showing an oversized focus on funds before they’re ready for it.”
More perplexing is that the survey pointed out: “About 70% of founders said they founded a startup because they thought it was an interesting idea or they had a problem or knew someone who had a problem that needed to be solved, without prior experience of startup operations. Just 18% of founders said they had worked on a similar problem before.”
In my opinion, the two most important attributes that define startups success relates to focus on gross margins and customer orientation. Irrespective of the size or the quantum of funding, if the business model does not factor in the above, then it’s a flawed model. — Rajeev Agrawal, CEO, Innoviti Payment Solutions
More than 90% startups in India fail in their first 5 years. Lack of pioneering innovation (77%) is the topmost reason for the failure of most Indian startups
If I ponder over the question – Why some fail, one of the major reasons why startups fail is because there is no market need or the product is mistimed. Poor customer demand means that sustenance becomes a major challenge. — Srividya Kannan, Founder, Director, Avaali Solutions
Srividya Kannan, Founder, Director, Avaali Solutions says. “If you look at the success factors, the key thing is about value. Startups are all about adding value to the customer either in the form of solving a current or likely problem or driving experiences. Testing and validating via customer adoption early-on is, therefore, a critical success factor. Startups that succeed, focus on customer on-boarding early in their cycle vs. say simply focusing on raising funds and then testing waters. Another sine qua non is to onboard a great team who are passionate about the story and drive business and customer satisfaction very vigorously. Managing finances is equally important – ensuring that the balance between costs and revenues
is always tilted positively is very important. This means keeping a close eye on cash flows as well as profitability.
“If I ponder over the question – Why some fail, one of the major reasons why startups fail is because there is no market need or the product is mistimed. Poor customer demand means that sustenance becomes a major challenge. Some other factors include not having the right team, running out of cash and lack of a sound monetization strategy, “adds Kannan.