Critical Success Factors for Startups

Startups

Over the last couple years, the startup ecosystem has rapidly evolved in India. Be it mobile / internet penetration, game changing policy reforms, increase in investable wealth or an evolving culture among others, all of this has set and continues to set the stage for what is, and what’s to come.

Consider the below statistics [1] for example:

  • Volume: With 10,000+ startups, India ranks within the top 5 countries globally in terms of number of startups. By 2025, the total number of startups is projected to be 1,00,000
  • Tech Startups: The total number of tech startups has increased from 480 in 2010 to 800 in 2015 and expected to increase to 2000+ by 2020
  • Gender Diversity: 9% of startup founders are women; 50% growth in share of female entrepreneurs YoY
  • Enabling Ecosystem: While total number of incubators have increased by 40%; the number of PE / VC firms has also doubled in the recent years

It’s not surprising that India was the location of choice for GES 2017.

That said, while the market is on the rise, it’s all the more important for startups to evaluate the below critical success factors, as 90% of them have failed before funding, and about 18%-22% have wound down after raising seed capital!

 

Founders: A healthy combine of gender diversity, age, academic qualifications and experience improve the chances of a startup to succeed. Consider the below stats from a HBR study [2]:

  • Companies with a female founder performed 63% better than investments with all-male founding team
  • The average age of founders of successful startups was ~40; that said startups with an average founder age of 25 or less, performed 30% above average
  • Companies with at least one founding member from a top school performed about 220% better than other teams
  • Teams with no less than one organizer coming from Amazon, Apple, Facebook, Google, Microsoft, or Twitter performed 160% superior to other organizations
    Above all it’s important for all founders to be on the same page and involved in the business plan from day 1!

While the above data is more US centric, Indian startups will benefit from these learnings.

 

Product / Market Fit: Consider asking yourself the below questions

  • Is there a dire need for this product / service in the market? Is it already available in the market today and if yes, what makes this any different? Is it extensible to incorporate upstream / downstream / adjacent features or services?
  • How does the political, economic, social and technological environment fare in context of the product being designed? Will it buoy the market demand collectively? If yes, do you have the data to substantiate this hypothesis?
  • Is it the right time to introduce the product / service?
    Uber, Paytm, AirBnB, Swiggy to name a few are great examples of startups maximizing on Product / Market Fit.

 

Flexibility: As per a recent CBInsights study [3], founders of failed startups attributed 18% of failure due to pricing / cost issues, 17% to inherent challenges in the business model, and a further 14% due to ignoring customers. Know that not everything will go per plan, and while your idea and associated business model may be great, it might require real time refinement based on customer / market feedback. Don’t take this personally, as your success lies in product / service adoption, and feedback will only come in if your customers / partners are genuinely interested in adopting the product / service.

 

Funding: Further to the aforementioned study [3], founders of failed startups attributed 29% of failure due to running out of cash, and a further 13% of failure due to disharmony between team / investments. Ensure you have a great funding strategy! While yes it’s about ensuring you have the required funds, it’s also extremely important to ensure you know your investors well before getting funded. Collaborate, build a great working relationship and ensure they understand every aspect of your product / service / business model, and further the inherent challenges very well! This can help drive the flexibility required on their part!

 

Discipline: Above all it comes down to discipline. It’s not all over once you get funded. Ensure you use your funds very well. Be frugal and drive usage on core. It’s not about driving a luxury car; it’s about driving a luxury car when you can pay for it on your own. Moreover, Larry Kim, Founder and CTO of Wordstream, found paying himself a lower salary and re-investing in the business, a great strategy to enable business growth [4].
There is no single recipe for success. Therefore, adjust the above ingredients to your startup context to ensure you achieve the desired results.

References
[1] ”Startups India – An Overview”, Grant Thornton in association with ASSOCHAM India
[2] ”4 Factors That Predict Startup Success”, and One That Doesn’t”, Tucker J. Marion, on hbr.org
[3] ”The Top 20 Reasons Startups Fail”, CBInsights
[4] ”5 Critical Success Factors for Early Stage Startups”, Larry Kim, on www.inc.com

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