According to various articles and survey reports published in online business magazines such as; Forbes, Medium, Small Business Trends, and Business Standard, somewhere between 60% and 90% of startups either fail to survive or scale in the later stages.
Starting up is relatively easier than scaling and taking to greater heights. With numerous startups failing and shutting down every year as reported by Business Insider, Closer IQ, Inc.42, Inc., and For Entrepreneurs, it’s high time that founders start looking into the case studies to understand what stands between them and the scalability.
1- A Good Plan Is Not Enough
Man proposes God disposes of. We all would agree that everything doesn’t go as per the plan, which is why several investors insist on founders having a Plan B. Realizing the business outcomes based on a plan depends highly upon the perspective, understanding of the domain, and the affairs that occur from time to time. A founder may not like a game of chess yet pondering upon his own plan time and again makes him agile enough to change the course of actions to save his ship from contingencies he may not have imagined earlier. Agility should be a part of preparation which is meant to prepare an entrepreneur from any impetuous crisis which is not impossible to appear.
Dalai Lama XIV said, “When you talk, you are only repeating what you already know. But if you listen, you may learn something new”. So talking less and listening more will further strengthen your preparation by providing insights you never had.
2- Poor Execution
A plan without willful execution is like a boat without a paddle. The areas where even the slightest goof-ups in execution may jeopardize the scalability of a business are as under:
Marketing – Having great traction but losing momentum by the time it should start scaling, can be a serious issue that may increase your burn rate. Having a marketing strategy with a funneled approach is the only escapade for a product or a company from losing its demand among its consumers. Make sure that you have a significant budget to run marketing activities where you constantly communicate with your TG about their problems displaying your commitment to solve them.
Management – As the startup grows further it starts adding new people which is similar to any growing living organism. It’s essential for the new members in the team to work in synergy like small parts of a large machine. A lot of startups start losing their fizz and eventually die due to the laid-back attitude of the founders or shabby management. We haven’t forgotten the sad demise of LocalOye which clearly tells us what happens if you don’t treat investor’s hard-earned money as your own.
Finance – All startups create pitch decks to raise funds from angels and VCs. In a 10-15 slide presentation, there is a vital slide that narrates financial projections. These projections are carefully forged keeping all expenses and burn rate in mind. But if your team deviates from the original plan or ends up increasing the burn rate, then you are soon about to find yourself in the heat of the soup. The finance team should monitor expenses on a regular basis to ensure that all costs are under stipulated budget and the team is strictly adhering to the plan set forth.
3- Having A Co-Founder Is NOT A Bad Idea
We all are built with different materials and have lived different lives. If you are planning to start a small pastry shop then starting alone may work well for you but large businesses are scaled with the help of large perspectives that come from liaising with various people and realizing the importance of qualities you don’t possess. It’s not a person but it’s people who build enduring companies that last long and create their own legacy.
A founder may be bright in understanding problems and building logic to solve them but there are a lot of areas where a venture requires experts. Take it this way – An engine in a vehicle can’t show the light on the road by itself. It can only supply power to the headlights. Similarly, there are prominent positions where you need experts who can run small to large teams of technology, finance, operations, marketing, etc. which is available to you only if you are generous enough to offer them sweet equity unless you have a large fund of your own and you are willing to pay them as per market standards. Sharing equity makes the outcome directly proportional to hard work and generates an enormous amount of ownership in the co-founders. It is rightly said that the x percent of something is better than a hundred percent of nothing.
4- Poor Delegation
This is similar to our previous point where we see that the founders are trying to take most of the workload on themselves. This is okay in the early stages of forming any company as it builds a rock-solid culture. But gradually the true leaders are the ones who create leaders, allocating tasks as per skill sets, monitoring and nurturing them to the extent when they don’t require any external drive to function by themselves. Delegating tasks gives you tremendous scope to work on complex problems that aren’t everybody’s cup of tea. Besides, it starts putting your developments and operations on automation.
5- Forgetting Left-Right Coordination
Whether you want to walk or run or maybe climb, you’d need a right leg and the left one too. If you have both the legs in order, but you aren’t using one of them, that’s not going to take you anywhere. If you want to go to your friend’s place in your neighborhood you can’t reach him in just one-step keeping one leg at your place and the second one in his. In the same way, you can’t climb a coconut tree in a single step. One needs to make small ascending movements using left-right leg coordination to climb to the top.
If the income generated by the venture is the left leg then creating infrastructure to accommodate the increasing customer base is the right leg. Both legs should work in synergy else, it would lose customer’s loyalty. On the other hand, if your capacity is larger than your customer base, then the additional cost will shoot up your burn rate. So income and investment must go hand in hand.
The ability to identify the correct dimension to upgrade the resources to cater to the predicted number of customers that don’t become a burden on finance nor insufficient to deliver what was promised is the true essence of a strong founder.
6- Delayed Fundraising
Delayed fundraising is like a late arrival of an alliance to support a needy country on the battlefield as that won’t resurrect the army from the dead. Normally a fundraising round may take anywhere between 6 months to 9 months. Each founding member should be completely aware of the current burn rate and the remaining runway. If a startup is getting popular among the consumers showing significant sales and everything hunky-dory but if the runway is not sufficient to survive until the subsequent round of funding, the chances are that you may end up in a mess and the investors may lose interest in funding your team.
7- Human Intensive Business Model
Urban Clap started in November 2014 and was evaluated at $935 million in January 2020, whereas Ola was launched in December 2010 and was valued at $5 Billion in the Year 2015 which is more than 5 times of UC over the span of 5 years.
Have you ever wondered why this vast difference? Simply because Ola’s business model is less dependent on humans than Urban Clap. Driving is a simpler skill than hairdressing, therapy, aesthetics, or carpentry which is commonly found in people and doesn’t require intensive long-term training. UC provides services that are process-driven and are extremely prone to quality issues leading to customers’ dissatisfaction.
Similarly, Laurel & Wolf in the USA started off as an online interior design marketplace. Despite the funding of $35.8 million the company could not survive and ran out of cash due to management challenges and exceeding operational costs due to the human-intensive business model.
8- Naive To Changing Times
The world is constantly changing ever since its origin and so are the needs and human behavior. The founders should be observant, vigilant, and smart. Yahoo Mail was once an internet business mogul. It was capable of buying any business in the industry and even offered to buy Google & Facebook at one point in time. Unfortunately, Yahoo could not read the pulse of changing times and succumbed to the declining demand for its services and better options available all around.
9- The Snare Of Intellectual Property Matters
Napster, a peer-to-peer audio file-sharing software faced trouble when brought down due to copyright infringement. Later, a few more names followed Napster’s P2P file-sharing example, such as Gnutella, Freenet, BearShare, and Soulseek. Some services, like AudioGalaxy, LimeWire, Scour, Kazaa, Grokster, Madster, and eDonkey2000, were also shut down for the same legal issues.
Creating entry barriers for other competitors is as important as breaking entry barriers created by them. This is where you need an awesome legal partner who is dedicated to finding each and every clause in their IP documents which prevents you from being in the business you long to be in.
10- The Lost Cause
Perspective is everything here. It describes the philosophy with which a foundation of an organization is laid. A lot of young founders find themselves in the spell of their concept. Falling in love with your own idea is like being full of yourself. It’s a blindness that makes you want everything to work your way. You stop looking at real problems with which your journey started, you get confused and angry when you face a crisis you did not imagine earlier. Life is unpredictable and so is the business. Entrepreneurship is like setting out on a voyage knowing you may not even return. An entrepreneur is a true captain that puts his crew and passengers above all his personal interests and leaves no stone unturned to sail towards the shore delivering everyone safe and sound to the new lands. Your customer is your hero therefore his problem should be your own problem. The day you divert your focus to your business more than his problems, you start losing it to other players.
Conclusion
Looking at the above pointers, we all can agree that in order to scale any startup, it is highly important that the founders are like-minded who must stick to the original goal, not to get carried away by the success of fundraising wasting the funds in flaunting office decor but spend every cent towards increasing your company’s evaluation. It requires custom-made tactics woven into strategy with precision to scale a startup into a large venture.
