why so many start ups fail
TRANSCRIPT
Why So Many Start-Ups Fail
A Report
by
Maurice Williams
Acknowledgment
“As we Express our Gratitude, we must Never Forget that the Highest Appreciation is not to Utter Words,
but to Live by Them”
John F. Kennedy
Helen Lange Habbibullah Khan Jason Fitzsimmons Ken Low
Darrell Metzger Amy Wong Mamata Bhandar Graham Bell
Tony K. Siddique
Why it is Important to Delve into the Possible Reasons, “Why So Many Start-ups Fail!
The increased rate in the survival of start-ups has the ability to positively impact economic growth
There is a sentiment that many of the new start ups in Asia tend less to evolve into the pillars of growth that the corporations and conglomerates of earlier decades
from the West
Why it is Important to Delve into the Possible Reasons, “Why So Many Start-ups Fail!
Since the early 1980’s when venture capitalists and private equity emerged on the business landscape in landmark proportions managers and scholars
have been seeking a scientific manner in which to recognise and categorise start-up operations
The cost of entry for to register and operate a start-up is at an all-time low. The web and its hosting, transaction and promotion platforms
immediately launch even a simple dumpling company to international proportions overnight
Social media has become a key driver for entrepreneurs and start-ups
In the last decade we have seen “Baby Boomers” demonstrate a higher rate of entrepreneurial drive than “Generation Y”
Why it is Important to Delve into the Possible Reasons, “Why So Many Start-ups Fail!
Predominantly A Qualitative Approach with reference to some Quantitative Indicators has been undertaken. The intention is to achieve a better
understanding for the entrepreneurial environment in Singapore
The secondary structure has been a Semi-Structured format –with free flowing conversation to heighten insights through participant’s thoughts,
sentiments and general behaviour
The need to build more science into entrepreneurship is an important study that needs to go further than obvious approach of how to build a start-up
based on just riding the Information & Internet Wave
Start-Ups Do Develop Through Some Identifiable Milestones of Maturity
These may be classified as:
Analysis
Affirmation
Ability
Application
The Start-Ups Interviewed Do Fall into Certain Key Groups of Business
These key groups can be categorized as:
Robot Start-Up
Community Converter Start-Up
Congregator Start-Up
Contender Start-Up
Fifteen Observations We Noted
1. Founders that had previous start-ups were more prepared for the journey
2. Start-ups who had previously re-aligned their business operations and even product offering were performing better
3. Indiscriminate expansion tended to be a predominant cause for failure and bad performance
4. Investment at the Analysis Phase tends to be over-subscribed and tendency to over-invest in initial founders
5. Real-time input and involvement from investors proves little or no consequence to the company’s operational performance
Fifteen Observations We Noted
6. Individual founders take probably three times longer to reach any measure of scale. This is in comparison to a twin or multiple founder start-up.
7. Business driven founding leaders are more likely to successfully mature the business through a sales-driven approach than would be a product-driven approach.
8. Technical driven founding leaders tended to more successfully mature the business through a product-driven approach than would be through a sales-driven approach.
9. Equitable founding leaders (business and technical approach) tended to success mature the business with less of a chance of scaling beyond its means.
10. Founding partners that did actively work the business had a significantly less confidence of raising capital from its investors.
11. The most impressive founding partners appeared to be those who were, Driven by Purpose more so than Profit.
Fifteen Observations We Noted
12. A vast majority of their founding partners admitted that that what they thought or felt to be their unique approach to market was not the company’s call to success as was initially thought.
13. It generally took three years for any new business venture to gain real traction in the market place.
14. Start-ups who did not bother to raise capital funding generally made too much presumption for estimated market share capture. In most cases they assumed that theirs would be a unique and virgin market for development, not realising that it is being served differently.
15. Increasingly due to connectivity and information transparency and availability no business model can clearly delineate between corporate and consumer customers.
Indiscriminate Expansion Guidelines
No single business dimension of:
- Client Relationships
- Product Development
- Organisational Structure
- Business Operations
- Financials
Comprehending what Brings About the Imbalance
Business Purpose
Client Relations
Product Development
Organisational Structure
Business Operations
Financials
What Brings About The Imbalance
Product development that does not meet market needs.
Too much emphasis on extras to cover up an irrelevant application
Too many headcount at the onset.
Specialist in each realm only should come in when the company is
operationally running
Management should only be hands on and running operations
Nothing worse than hierarchy without foot soldiers
Quote on Indiscriminate Expansion from Ms. Olivia Loh Lay Pin Owner& Managing Partner SuperCuts Sengkang & Nexx“Both stores currently average a $1.3 m turnover each
I have opened two SuperCuts outlets and the first being Sengkang we made recovery of $400 000 start up costs inside 6 months. Using exactly the same model for Nexx two years down the road revealed a completely different set of issues. This is despite the fact that both Shopping Malls were initiated and run by the same managing agent. Prices and offerings were to be the same across both stores and we used the same banker, equipment suppliers, designers and even senior stylist team and structure to initiate the business. Both were in shopping malls within reasonably young heartlands connected by the same MRT line. It has taken us 36 months since opening to recover initial set up costs!Indiscriminate expansion can put expenses on resources before we have had time to assess the customer requirements and peculiarities. As business owner who has previously experienced run-away success I had been tempted to scale up in exactly the same way I outfitted Sengkang – having been lucky the first time. It has taken some time for us to recover and gain traction with our different customer set.For the hair styling team there was the mistaken presumption that branded treatments and preparations would attract and retain customers within reasonable price points. Unfortunately we were competing in a segment that was borderline mass fashion and ramp up in store outlook was a necessary evil but no one was anticipating the bumpy ride we would be in for with economic changes and minor demographic/ psychographic peculiarities.”
Structure of Indiscriminate Expansion
The Analysis Period
Consumer acceptance which can be quantified by the number of clients, their increased account, enlarging client usage pattern, frequency of use, loyalty and profitability of account
The Ability Period
Fine tuning of processes in client
management, offering platform, account handling, liquidity of company and business purpose
Analysis/ Ability Balance
The Fooled Purchaser
The Overwhelming Organization
The Insolvent Financials
For Purpose First, For Profit Second
Quote on Indiscriminate Expansion from Mr. Tan Eng Beng Owner of World Auto Pte. Ltd. A $3 m turnover automotive workshop
“When beginning do note that you are very weak (fragile). Spending investor money in the beginning is with the hope of capturing business but you are not sure if it will work or not.Khiang Te Hor. Mai Keh-Khiang! (Hokkien Expression literally translated Being Smart is Good, Just Don’t Be a Smart-Ass!)When you start out just make one or two types of service/ product don’t do so many. Also you must be the boss. Your manager or senior worker cannot direct the company – you decide!”
A Review of Customer Usage Incidence within 30 Day Cycles Against Different Stages of Start-Up
Series 1
Series 2
0
1
2
3
4
5
6
Analysis
Affirmation
Ability
Application
Series 1
Series 2
Series 1 – Represents Indiscriminate Expansion Start-Ups (Unsuccessful)Series 2 – Represents Discriminate Expansion Start-Ups (Successful)
The Indiscriminate Expansion Start-Ups progressed quicker in the beginning possibly as a consequence of initial interest towardsovertly developed product.
The Overall Perceived Nett Worth A Start-Up Was Accessed At In The Different Initial Stages
Series 1
Series 2
0
0.5
1
1.5
2
2.5
3
Analysis
AffirmationAbility
Application
Series 1
Series 2
This represents the overall perceived nett worth a start-up was valued at during the the different initial stages. The undervalued and conservative businesses tended to be have their values soar at later stage of development.
The Characteristics of Indiscriminate Expansion Start-Ups Against Discriminate Expansion Start-Ups
05
1015
2025
30
Discrimate Co. in Year 1
Indiscriminate Co. in Year 1
Discrimate Co. in Year 3 on
Indiscriminate Co. in Year 3 on
Series 2
Series 1
This indicates that indiscriminately expanding start-ups usually begin with significantly larger teams even thought their business has not scaled to fit market requirements.
Investment Points/ Level in a Start-Up at On-Set
Series 1
Series 2
0
50000
100000
150000
200000
250000
300000
Analysis
AffirmationAbility
Application
Series 1
Series 2
Column1
Indiscriminate Expansion Start-Ups tend to garner lots of revenue (much like during the dot.com era) before they can consolidate the market and fine-tune their operational mechanisms. Bringing about too much capital injection early is detrimental to start-ups, it just forces the company to take grow in operational structure unnaturally.
Quote on Indiscriminate Expansion from Ms. Jessica Oman Author of From Idea to Open: Planning Your Service Business By the Numbers
“Some entrepreneurs “bootstrap” their start-ups – meaning they spend as little money as possible on the launch and stretch every dollar as far as it can go. If you're using a bootstrapping or lean start-up strategy, be careful not to underestimate your start-up costs. You don't want to run out of cash before your business ever opens; in fact, you want to have a reasonable amount of working capital left over from start-up so that you're in a strong cash position when your business opens, and you can cover your ongoing expenses. Got your start-up costs in order? Now comes the fun part: finding funding sources!”
Reflective Assessment of Start-Up Owners on their Company’s Valuation
0
0.5
1
1.5
2
2.5
3
3.5
4
Indicriminate vsDiscriminate Start Up at
AnalysisIndiscriminate vs
Discriminate Start Up atAnalysis
Series 1
Series 2
Start-Ups tend to overvalue their worth during discovery and then rushes to lower it on realization when they put their product out in the market place. A good point to note is that when on your own without investors you did worse – than this is a good point.
Entrepreneurs Reflection on What was Important at the Analysis Realm
Series 1
Series 2
Column10
10
20
30
40
50
60
70
80
AnalysingProblem Confirming
Product Fine-TuningProduct Escalating
Output IncreasingProfitability Expanding
ProductApplication
Series 1
Series 2
Entrepreneurs Reflection on What was Important at the Ability Realm
Series 1
Series 2
Column10
10
20
30
40
50
60
70
AnalysingProblem Confirming
Product Fine-TuningProduct Escalating
Output IncreasingProfitability Expanding
ProductApplication
Series 1
Series 2
Quote on Indiscriminate Expansion from Ms. Zhang YanglingSerial Entrepreneur
“Expanding at the correct moment is a difficult decision. If too soon you will loose money and get disheartened. If too late you will lose the opportunity.It is not always so predictable, some say it is fated. I say if you have a 60% chance go for it with confidence. Expansion is not always about having more customers it’s about choosing what you want to get from them.”
How Much Entrepreneurs Deploy Outside Their Capability
Series 1
Series 20
2
4
6
8
10
12
14
16
18
20
Analysis StageAbility Stage
Series 1
Series 2
For the initial period it is suicidal to lose control of product development and service development. The fundamental realms ofcreation, consumer capture, operational procedures and liquidity management must be under full control.
The Types of Exchange Approach
Series 1
Series 2
Column10
5
10
15
20
25
30
35
40
45
CurrentExchange(superioroffering)
CurrentExchance (more
economicaloffering)
CurrentExchange(specialistoffering)
FutureExchange(potential)
Series 1
Series 2
Indiscriminately expanded and discriminately expanded start-ups demonstrate parity of product entry when putting to sale in current market framework. But in the case of potential and current market frameworks where introducing a more economical offering the behaviour is quite different.
Share of Paying Customers by Type of Start-Up Business
Series 1
Series 2
Column10
5
10
15
20
25
30
35
40
Robot TypeStart-Up Community
Converter Start-Up
CongregatorStart-Up Contendor
Start-Up
Series 1
Series 2
Indiscriminately expanded type start-ups tend to try capitalizing every single business avenue when what they should be doing is focussing on newer more attainable opportunities.
Certification of Founding Partners in Start-Ups
Series 1
Series 2
Column10
5
10
15
20
25
30
35
40
45
50
Primary SchoolSecondary
School Polytechnic/Vocational Pre-University/
College UniversityPost Graduate
Series 1
Series 2
It is clear that the type of study the entrepreneurs had has no bearing on their ability to do business.
Type of Sex the Entrepreneurs Are
0
10
20
30
40
50
60
70
80
90
100
MenWomen
Series 1
Series 2
It is clear that the type of sex entrepreneurs has no bearing on their ability to do business.
How Long The Entrepreneurs Knew Each Other
Series 1
Series 2
Column10
5
10
15
20
25
30
35
40
Below 90 Days90 - 180 Days
Half a Year toOne Year A Year to One
and Half Years One and a HalfYears to Three
Years
Three Years andAbove
Series 1
Series 2
It is clear that the length the entrepreneurs had know each other has no bearing on their ability to do business.
Number of Times the Entrepreneurs Created Start-Ups
Series 1
Series 2
Column10
10
20
30
40
50
60
70
80
FirstSecond
Third
Series 1
Series 2
It is clear that the number of times entrepreneurs had built start-ups has no bearing on their ability to develop a successful business.
The Mean Age of Entrepreneurs
05
1015
2025
3035
4045
Average Age
Series 2
Series 1
It is clear that age entrepreneurs had built start-ups has no bearing on their ability to develop a successful business.
The Quantity of Product Lines Offered by Start-Up
0
10
20
30
40
50
60
70
80
One ProductTwo Prodcuts
ThreeProducts
Series 1
Series 2
It is clear that the number of products start-ups has no bearing on their ability to develop a successful business.
The Final Analysis
The indiscriminate expansion is a consequence of this company’s paying too much attention on a particular perspective of operations whilst neglecting the others.
The indiscriminately expanded company’s had overspent too soon on customer capture, getting too much headcount, putting in place top brass too soon and looking too closely at the product development at the expense of closing a deal.