Entrepreneurship - An Innovation or Eulogy ?

- Dr S SarkarSeries of Lectures at BITS-Pilani, Dubai, UAE

Start-up Entrepreneurs - Issues & Challenges

Why go for Start ups ?

1.Innovation;

2.Great possibility of instant mkt leadership;

3.Low startup & Seed money as investment;

4.Easy globalisation;

5.Low gestation & Instant revenue generation;

6.Ease of Mkt proliferation & low risk.

Examples from Indian start-ups

• Failures:Zomato.com;TinyOwl.com;Housing.com.

• Successes :Flipkart.com;OLA.com;SnapDeal.com.PayTM;Homelane.

Three Truths on Your New Ventures :

How many of your customers repeat;

How often do they repeat;

The rest of your business is just a support system for #1 and #2.

Reason 1: Market Problems

• There is not a compelling enough value proposition, or compelling event, to cause the buyer to actually commit to purchasing. Good sales reps will tell you that to get an order in today’s tough conditions, you have to find buyers that have their “hair on fire”, or are “in extreme pain”.   You also hear people talking about whether a product is a Vitamin (nice to have), or an Aspirin (must have).

• The market timing is wrong. You could be ahead of your market by a few years, and they are not ready for your particular solution at this stage. For example when EqualLogic first launched their product, iSCSI was still very early, and it needed the arrival of VMWare which required a storage area network to do VMotion to really kick their market into gear. Fortunately they had the funding to last through the early years.

• The market size of people that have pain, and have funds is simply not large enough

Reason 2 : Business Model Failure

• As outlined in the introduction to Business Models section, after spending time with hundreds of startups, I realized that one of the most common causes of failure in the startup world is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that because they will build an interesting web site, product, or service, that customers will beat a path to their door. That may happen with the first few customers, but after that, it rapidly becomes an expensive task to attract and win customers, and in many cases the cost of acquiring the customer (CAC) is actually higher than the lifetime value of that customer (LTV).

• The observation that you have to be able to acquire your customers for less money than they will generate in value of the lifetime of your relationship with them is stunningly obvious. Yet despite that, I see the vast majority of entrepreneurs failing to pay adequate attention to figuring out a realistic cost of customer acquisition. A very large number of the business plans that I see as a venture capitalist have no thought given to this critical number, and as I work through the topic with the entrepreneur, they often begin to realize that their business model may not work because CAC will be greater than LTV.

Reason 3: Poor Management Team

They are often weak on strategy, building a product that no-one wants to buy as they failed to do enough work to validate the ideas before and during development. This can carry through to poorly thought through go-to-market strategies;

They are usually Poor at execution, which leads to issues with the product not getting built correctly or on time, and the go-to market execution will be poorly implemented;

They will build weak teams below them. There is the well proven saying: A players hire A players, and B players only get to hire C players (because B players don’t want to work for other B players). So the rest of the company will end up as weak, and poor execution will be rampant.

Reason 4: Running out of Cash• Progress from Seed round valuation: goal is to remove some major element of risk. That could

be hiring a key team member, proving that some technical obstacle can be overcome, or building a prototype and getting some customer reaction.

• Product in Beta test, and have customer validation. Note that if the product is finished, but there is not yet any customer validation, valuation will not likely increase much. The customer validation part is far more important.

• Product is shipping, and some early customers have paid for it, and are using it in production, and reporting positive feedback.

• Product/Market fit issues that are normal with a first release (some features are missing that prove to be required in most sales situations, etc.) have been mostly eliminated. There are early indications of the business starting to ramp.

• Business model is proven. It is now known how to acquire customers, and it has been proven that this process can be scaled. The cost of acquiring customers is acceptably low, and it is clear that the business can be profitable, as monetization from each customer exceeds this cost.

• Business has scaled well, but needs additional funding to further accelerate expansion. This capital might be to expand internationally, or to accelerate expansion in a land grab market situation, or could be to fund working capital needs as the business grows.

Reason 5: Product Problems

• Another reason that companies fail is becuase they fail to develop a product that meets the market need. This can either be due to simple execution. Or it can be a far more strategic problem, which is a failure to achieve Product/Market fit.

• Most of the time the first product that a startup brings to market won’t meet the market need. In the best cases, it will take a few revisions to get the product/market fit right. In the worst cases, the product will be way off base, and a complete re-think is required. If this happens it is a clear indication of a team that didn’t do the work to get out and validate their ideas with customers before, and during, development.

• South Korea has a government program to fund startup companies, but most startups in the world are self-funded.

• Why Startups fail ?

Why Startups fail ?• Startup companies seem to have all the fun. They create new markets, disrupt old

ones, get large amounts of money from venture capital firms, throw wild launch parties, have the best-looking offices — the list goes on. But is it really that easy to reach startup stardom, or do these idyllic stereotypes hide a harsher truth?

• As it appears, the reality is harsh indeed, because 90% of all startups fail. It counts for just 1% of total startup funding, as 82% of startups are self-funded and 24% of entrepreneurs rely on friends and family to keep their business dreams afloat. As for wild parties and lavish offices, the more extravagant they are, the more money is being thrown away, reducing the chance of success and abusing the trust of investors.

• Whether you’re a curious bystander, an entrepreneur or a concerned investor, I’m sure you’re keen to know how these “accidents” happen. What is the main cause of death of 90% of startups? According to experts at Startup Genome, it has a lot to do with a phenomenon called “premature scaling.” Nathan Furr, an entrepreneurship professor at Brigham Young University and the author of the book aptly named “Nail It Then Scale It,” defines it as “spending money beyond the essentials on growing the business (e.g., hiring sales personnel, expensive marketing, perfecting the product, leasing offices, etc.) before nailing the product/market fit.”

• Here’s what premature scaling looks like in practice, using two startups as examples:

Why Startups fail ?• Another common reason for failure, Furr argues, is that startups “are doing

good things but doing them out of order. In other words, they are doing things that seem to make sense, like investing to build the product, hiring good people to help them sell it, developing marketing materials, and essentially doing all the kinds of things that big companies with lots of resources do when they are executing on a known opportunity.”

• The issue here, however, is that these investments make sense only when there is extensive pre-existing market research supporting them, or years of sales data that justify the risk. In the majority of documented cases, instead of assessing the risks and opportunities objectively and scaling those investments accordingly, startups rely on guesswork, giving more credit to their vision of what the future may hold, rather than examining real facts. This is understandable, as many startups bring new and never-before-seen products to the market, but this is also why they need to manage the process of coming to the market differently.

• What about other causes of startup demise? Here’s the list of top 20 most common reasons by CB Insights:

Why Startups fail ?

• The reasons for failure are varied indeed. Reading charts and books is all well and good, but sometimes you want to go granular and really dig into why some startups crashed and burned. Wouldn’t it be great if there were a website sharing failure stories of various startups, so you could learn from their mistakes, and hopefully avoid them? Well, look no further. Visit Autopsy.io to get your daily dose of lessons.

• Although the website layout is very simple (it’s basically just a spreadsheet), the content is a real treasure trove. Spreadsheet columns consist of data such as the name of the startup, the idea, the reason for failure, as well as links to relevant articles/blog posts and founders’ Twitter TWTR, -0.15%  handles.

• It’s obvious that the data support the aforementioned statistics — no market, running out of cash, lack of focus and many more reasons are given, creating short and intimate stories that are a part of this depressing, but educational, database of broken dreams and business ideas.

Jayanth Mysore said goodbye to Google after working there for over eight years, joining “Homelane”, a Bengaluru based start-up that calls itself ‘Millennial Carpenters’. Switching to a company that offers tech-enabled interior decoration solutions for homes was a big career shift, yet Mysore’s decision hardly caused a ripple.

That is because Mysore has joined a long and growing list of senior executives leaving profitable and global tech and non-tech corporations like Microsoft, Twitter and P&G to join internet and app-based Indian firms like Paytm, Flipkart and of course, the ‘Millennial Carpenters’.

Hindustan Times, New Delhi, 20.11.2015

Eulogy

Hindustan Times, New Delhi, 20.11.2015

Examples of Indian Startups

• Challenges:Zomato:TinyOwl.com;Housing.com.

[ Issues With Respect to HR]

Thanks a Lot !