Startups

Everyday teaches a lesson in startup land. We will share our leanings as well as of our guests, customers here.

What is Start-Up?

As per dictionary start-up is a “business that has just recently started operation”.

Though there are no such hard and fast rules on defining a startup as the profits, revenues and the employment numbers depend on the companies and industries.

A startup is a business structure with a feasible business model that delivers an innovative product, services, process or platforms that solve the customer problem in the market place or increase the productivity among the employees or the students.

A startup is a budding company that is just beginning to develop their own product, services or platforms. The startups are actually small in size and at the nascent stage financed and operates by a handful of founders or a single individual. The intention of a startup to grow faster by fitting their offerings to completely untapped markets which have a demand but not being served by other conventional big companies.

Unlike Google, not all businesses start their humble expedition from the garages. We may see some startups are operating from an apartment or some brick and mortar stores or may be working from startup incubator centers. Due to the blessings of the technology, we are now encircled by many different types of startups which is helping us in our day to day activities in lots of different ways.


The popular beliefs about the venture -funded startups are only highly successful. But the fact is, there is a vast majority start-up exists who are bootstrapped but still they are successful and grew steadily. There are different types of startups and anyone is starting their own then they must know the types of startups, different types of investment needs, risk profiles, lifestyle implications to match with his best suitable business idea.

Type of Startups:

The startups can be classified into five different categories.

Life Style Startups:

There lots of professionals who are blurring the passion and professions. For example: Persons who are passionate about drawing, they are launching animation startup and the people who have some experience in sky jumping are offering sky jumping training to others. The lifestyle startups are all about passion and finding out a way to earn from it.

Small Business Startups:

The majority of the small businesses are not scalable. The owners wanted to own such type of businesses to support their families. Electricians, plumber, carpenters are such examples that fall under this categories. The very good thing about the small business owners is they hire the local talents and contribute to the local economy. Their business is not so profitable and does not hog the limelight of the media but the fact is that the small business owners work hard like any other silicon valley entrepreneurs.

Buyable Startups:

These companies are created to be acquired by the larger companies. There are numerous web, mobile apps, E-commerce companies are acquired by the large organizations. These startups develop their own products from the scratch and launch it. Recently WhatsApp was acquired by internet company like Facebook, LinkedIn was acquired by software behemoth Microsoft are the best example of buyable startups.

Scalable startups:

The scalable companies are very different from the small business startups though they too have very humble beginnings. Unlike the small business startups, the scalable startups target large size potential targeted markets, design disruptive and scalable business model, stay ahead of competitors by fast execution of technology which no one had offered before.Few perfect examples are Twitter, Basecamp, Cloudera are the present day scalable startups. The founders of such startups believe that they have an idea that would change the world and for that, they need external capital to execute their idea quickly.

Social startups:

startups are not meant for profit-driven rather they operate for a social cause. These startups can be classified as a nonprofit or for -profit or sometimes hybrids. Though the social entrepreneurs are working for a better world but it does not mean that they are less passionate about their success. These kinds of startups more often need donations or charity. Scott Harrison was a promoter for nightclubs and luxury events and was living a charmed life in New York. But deep down who was unhappy, when he realized that some part of the world needed clean drinking water. He then started a social charity named “Charity: water”. Till then social charity funded 3,962 clean water projects in 19 countries.

What makes start-up successful?

Did you ask yourself why do only 5% of start-ups succeed?
There are numerous theories about it. The common beliefs if anyone have a good idea then definitely they will build a multi-billion dollar company. Yes, they might be right, but how about the timings, team, business model and funding?
Bill Groos, founder of the start-up accelerator idealab who helped 150 start-up companies to launch and over 45 of them either go public or got acquired shown a hypothesis to rate his start-up companies across five factors.These are: 
Timing: Is the company launched the right product at the right time? Though all the five factors are important but the big surprise is the timing. This is the most important factor that accounts 42% of the success rate of any start-ups.
Uber was launched in India when the low -cost internet penetration started catching up the market. Also, when the drivers were unhappy with the current systems in place and wanted to work on their own schedule and make more money.
Even Airbnb came out during the major financial recession when homeowners were looking for additional sources of income, and would be more open to renting out their house to a stranger. 
Team: Does your team have the potential to execute the idea or excellent leadership skills? It may be a top class idea of a single person but it is the team who execute it and turning that idea or visions into a reality.  This is the second most parameters with the success rate of 32% according to Bill Gross.Ideas: The idea is the foundation of starting a new business. The idea is defined in many ways. Maybe it born to solve a customer problem, to fill up the market gaps or innovative in nature. According to Bill, 28% of start-up succeed because of a good idea.For an example: There is a huge amount of fossil oil produce daily and as a result millions of tonnes of CO2 emission. The transportation and energy industry is a major culprit, adding up 40% of the global GHG emission alone. To reduce total reliance on oil and to help combat climate change the idea was born behind the Tesla automotive.

Business Model: 

The Business model plays a critical role in the success of any company as it describes that business how it will earn the revenue. The business model helps in obtaining investors for the entrepreneurs. Bill Gross explained the start-up with an innovative business model success ratio of 24%.
The Amazon’s business model was selling a product at lowest price in a large targeted market with fast delivery and exceptional service. As the company started growing, enlarge the product line, bargain the volume discount with the suppliers, invest in technology to make a faster customer response time and reduce the waste from operation as much as it can be. At last, deliver the lowest cost to customers as much as a lower price.
Funding: An entrepreneur can design numerous business model development but when comes to running their own business then they need the funding. A business will be buried under own debt if that company does not have any fund. The funding might be needed for various activities like payroll finance as the start-up needs to pay their employees on time, building the product and for marketing activities. The worst thing that you have an excellent idea, a market fit product with good timing and wanted to expand quickly but you don’t have funding properly. According to Bill Gross, 14% start-up gets the taste of success if the company is properly funded.

No startups want to record their name in the failure list but still, 75% of venture-backed startups fail according to an article published by a company named fast company. This statistics is studied by Shikhar Ghosh based on a Harvard Business School. The failure rate of US companies after 5 years was over 50% and became 70% after 10 years.
After doing numerous research and post-mortems reports published by various venture capitalist firms and they found the failure reasons primarily classified into two categories.These are: 
The first one is company level mistakes. The second is management or leadership level mistakes
Lets discussed what is a company level mistakes and how these startup companies are doing such mistakes in the pre or post stage of their startup launch after analysing the post-mortems of 101 companies by CB insights.

The company-level mistakes are:

No market needs: 42% of startups said that they failed because they were not solving the market problems enough and they could universally serve with a scalable solution. The startup owners had addressed their own problem but could not understand that others might not be suffering from the same problem, or might be far better and successful product is already available where they are catering to. Also, might be the market is still not ready yet to accept their product as it is too early to accept or they are a very late entrant in the market which is not very exciting for the customers. So no one cared about the offerings.
Ran out of cash: The stat shows only 2 startups get funding out of 1,000 startups. And only one funded startup become unicorn of out of all 10,000 funded companies. 24% entrepreneur said cash crunch contributed to their startup failure. Even the startups who raised a fund and started burning their good portion of a fund on marketing and personal relationship to transmitting the messages of something they are not even sure whether their product has such capabilities to do well in the market or not. 
Another reason is many entrepreneurs are engineers by professions or by heart and want to build a perfect product which would dazzle the world. So they started ignoring that they are burning the cash and assume that the investors will knock on their door and write cheques for them.
To avoid a cash crunch, the entrepreneurs must view that fundraising is a full-time job and started networking to meet the investors before their companies run out of cash. 

3. Not the right team: 

A proper team can make or break a startup as 23% failed startups already knew it. This is the third most important reason for startup failure when the team is found incompatible or disharmonious among each other. According to 37% founders, getting the right team from day one is the most important one. This is one of the main aspects of the top investors who emphasis on the team before they invest. The  Ideas, products roadmap may change or the market may take unexpected turn anytime but the team is the one who holds everything at the end of the day. The Selection of a group of smart people is just not enough for your success but rather than the right people who complement each other’s strength among the team members to mitigate other’s weakness.
Another one more reason for failure is the equation between the investors, founders, employees, and board members are not rowing in the same direction and the company starts getting downfall when everyone is trying to pull the business in different directions.

4. Got outcompeted:

Ignorance of the competitors is another recipe for failure in 19% of startup failure. The common beliefs of the founders that they are the only ones with an excellent and innovative idea and start ignoring the competitors. Another one reality is that, once your idea got market validation then some other companies can start copying your idea and there may be many entrants in the same space.

5. Pricing or Cost issues:

Another mistake done by the entrepreneur is the right pricing in respect to the market they are targeting. The most people compare pricing with quality. The pricing is a dark magic as the low pricing may not cover the cost or dilute the people’s perception of the quality. Also, the high price may lead to a gradual decline in the sales and revenue generation.
The pricing should be like that at least you are covering the product cost but with a reasonable margin. So, you can make a sustainable profit to grow your business. The survey points out the fact that 18% of startup fails due to the imbalance of the pricing and cost issues. 

6. User unfriendly product:

 You build a product and realized that it is having very bad UX experience and no one want to use it. This is the beginning of the death of your startup. Nearly 17 percent of startups reveals this was one of the main reason for failure.
In the book “Alibaba’s World” talked about the “Jack Ma dummy test”. The new product in Alibaba is first run by Jack Ma, if he is unable to run (as he is from the non-technical background) then it is assumed that user experience will not be palatable especially if the personnel from a non-technical background. 

7. Product without a business model:

Idea is excellent and very unique in nature and also have a very good market fit and demand, but sadly there is no plan to monetize the idea. In some cases, the monetization is depended on only a single channel. Then the business may fail in a long run and will not scale and can not attract the investors.
As per the survey results, it was found that out of 101 startups almost 17% of startups fail because of the lack of business model.
Linkedin as an example generates revenue from advertisement as well as by offering more features to their premium users. Now if the customers do not sign up for premium service then the traffic can be used for marketing purpose.
Also along with company level mistakes, another reason is leadership level mistakes.These are:
Not very focused on business. Not having enough motivation, neither can motivate the team member’s commitment and passion. Taking guidance or recommendations or advice from the irrelevant people who have no idea about the subject Lacking mentorship baffle the team personally as well as professionally. This creates immense frustration among the team members. Not having enough general as well as domain-specific business knowledge like finance, operations, and marketing is also another reason for failure