The rise and fall of startups
Startups (and also small businesses) are all over the place. Surprisingly it is quite difficult to get a clear and trustworthy up-to-date statistics about their status. However, the percentage of startups that fail in the first year vary between 70-90%. Mostly it depends on the niche or region that was taken into account while collecting data. Just to make it simple - we will assume that more than ⅔ of startups fail in the first year. Even if it was just 50%, there is still a huge chance that your startup won’t make it either. Detailed statistics are available on statista.com or included in reports like Startup Genome (yes, it really says that more than 90% fail but bear in mind that it was written in 2011 while the startup environment is changing rapidly). If you are more into an academic approach of data collection, check out this report on ResearchGate (2014), in which the researchers checked early-staged companies (sample of over 158,000) in multi-industry and multi-country context.
What is different now? In 2018, the venture capital investment is peaking, the changes implemented in a patent system, the birth of Artificial Intelligence and development of Machine Learning, digital nomadic lifestyle is on the growth… and many more. The environment is changing quickly and the needs of the market are changing with it, which means more opportunities for startups and small businesses.
Mistakes while launching the product
Launching a startup is a one-time event. This is why it is very important to be well prepared.
It seems like we really appreciate the possibility to learn from mistakes (hopefully not ours) and there is a huge amount of reports and analytics telling exactly WHY do they fail. So what is the common denominator for failure and how to avoid it?
Earlier this year, CB Insights collected and analyzed the failure reasons from 269 case studies, as a result, CB Insights made this infographic:
Source: CB Insights, The Top 20 Reasons Startups Fail
Just by taking a quick look we can understand that in many cases the startups failed due to inadequate testing (no market need, user-unfriendly product, lack of a business plan, product mistimed, failed geographical expansion), lack of persistence, money and legal issues, problems inside the team and so on. Many of those could have been avoided if the startup founders were prepared well enough to launch the product.
Looking at statistics and having in mind the key phases, we could divide the main causes of failure in three-time categories (mistakes made while):
How complex product development is and how to launch properly?
To successfully launch a product and at the same time enter the market as a startup, the vast majority of work has to be done before having the product ready. Why? Planning, especially when it comes to a complex product, is the key.
Let’s focus on the product and market itself - pitching investors and own fundings are extremely important but it is another huge topic to cover.
What could go wrong here? Take a look at the infographic once again and you will notice how many startups fail were bound to happen due to the inappropriate market research, lack of idea validation, lack of proper MPV, issues in the team or not enough (or too much!) funding.
What are the essential steps while planning the product development to do it right, or at least to increase the chances of success?
- market research and UX audit
Without knowing your potential customers neither the market reality, it is not possible to create a product that in the future will bring some revenue. The market fit is a must. Often what happens is that the startup founder has an idea, builds a solution (product), tries to sell it but nobody really needs it, runs out of money and the startup is joining the failed startup cemetery. Even if the idea was good, if there is no market need nor you can create it, it won’t be profitable. It is so simple. Same goes with a lot of features that no one needs or chasing the perfect product and losing the focus. To avoid it, a proper market research and UX audit are more than necessary.
Finding the right customers, understanding the needs of your target group and eliminate the possible mistakes before you start developing the product is the way to go. Moreover, UX audit gives you a lot of data - and there is nothing more valuable in business than solid data answering important questions like What is working, what is not? Which implemented changes had some impact? What is the user behavior?
- MVP and idea validation
User-friendly solutions only! After the UX audit and market research, the time has come to work on your product, and yes, User Experience matters. Basically, a user-first mindset is the winning strategy. It means, that the product meets the users’ needs and expectations. Being able to adjust and change/delete/redefine some features will help to enter the market and answer those users’ needs. To give an example, once upon a time there was an app called Burbn which had a lot of features - checking in at locations, earning points for hanging out with friends and posting pictures of meet-ups, just to name a few. However, it was in general pretty messy and what the founders (Kevin Systrom, Mike Krieger) noticed was that the most popular feature was photo-sharing. Redefining the app and focusing on photo-sharing ability was the beginning of what we know nowadays as Instagram.
On the other hand, some apps might need additional features which make them work better and at the same time, meet users needs (i.e. group chat function in WhatsApp). It all depends - and to measure it, estimate it and finally bring it up to life, it has to be done properly. Ever heard about Product Design Workshops? That’s exactly how you make a user-friendly tailor-made product.
More about the process itself in web development, building the MVP (Minimum Viable Product) and the scoping sessions you can learn from Maria, a professional UX designer.
A proper team is quite necessary and please, do not even consider a lonely wolf path - after some point, you will need people to collaborate with, in one way or another. It is an inherent part of growing. There are three ways to deal with it:
- hiring an in-house team
- hiring a software consultancy or freelancers
- hiring an outsource company
Obviously, there are pros and cons for each solution and it also depends on many factors, for example, how difficult the project is. Sometimes, especially for complex products, it is better to give it more time, hire a software development company with own management process, in-house QA team which won’t allow any bugs to pop-up while launching, as well as having a support team to maintain the product in the future. On the other hand, if for example you are a business person and need someone tech-savvy but you know exactly what do you want to get as an outcome, maybe a freelance developer would do just fine. Regardless of your final choice, first the needs should be set up and prioritized. Then it is possible to estimate how large should be the team and which path is the best for your business.
Thinking about funds is necessary on every stage: while writing the business plan, MVP development, finding the right team to finally start searching for investors, co-founders, business angels, accelerators, incubators and so on. Many possibilities. We won’t cover this topic now but what is really important from the product development point of view is that startup founders should give it time - it might be better to invest a bit more, check it twice or even redesign the product before launching than entering the market and fail due to not having enough time during the preparation process. Proper methodology during the development process should be a principle for each startup.
Launching a product is a journey and a startup founder has to go step by step from the concept, basic UX assumptions, testing, market research, MPV, gathering fundings, product delivery and the final product launch on the market. Let’s bear in mind that the time factor has a huge influence on the success of the product - due to limited accessibility and so on. What should be always kept in line is the time and the budget. If there is no chance to launch on time within the budget, the solution is to pull back the scope. In another way, the quality of the product will suffer, a lot. Keep the scope flexible but always have the time and budget fixed.
What might help is a proper market research and UX audit made before this step? Regardless of the marketing part, which is also incredibly important, the startup should still be checking the UX, improving, developing and always having user’s needs in mind.
From a business perspective, scaling is the essence of product development. Getting a revenue from actual customers should be the main goal of a startup. Basically, it means that there is a need for the product on the market and what follows, we might get more investors. However, the core should be the revenue from paying customers.
Don’t make those mistakes
A general recipe for success doesn’t exist but trying to avoid mistakes which were mentioned before and focusing first on the user and after that, on the product development seems like a way to go. Of course, there are many exceptions in the market but a prospering business is a mixture of many ingredients. A startup scene is highly competitive and most likely every founder thinks that his or her idea is revolutionary. But how many revolutions the market can handle? What is more important, how many revolutions the customer actually needs? To avoid mistakes while launching a product and entering the market, bear in mind that adequate testing is a must, a great team is extremely important, moreover, a startup should have a clear strategy but still be flexible and willing to adjust. In this way, you gain customers and investors which solves another common problem: lack of money.