While the awareness of how difficult it actually is to launch and sustain a successful startup is definitely growing, the fact remains many startup founders still make mistakes. In some cases, this is due to the unforeseeable market circumstances, but for the most part, we can still trace the reasons for their startups’ downfalls to inadequate preparation.
So, what are the most important considerations when launching a startup? How to be prepared?
Know your ultimate goal
This one may sound silly. The ultimate goal is to be successful, have many customers/users and make money, right?
Well, it’s not actually that simple.
Look no further from Uber. Uber started off as a startup and it literally exploded. It is a household name, a presence in everyone’s lives. Well, Uber doesn’t generate any profit. When all is said and done, it isn’t making money. And that’s before we start discussing how little Uber drivers are paid and how they get no benefits at all.
Getting a ton of users and customers is not a guarantee of profit.
It takes quite a bit of money savvy to make your startup profitable and you cannot expect that to happen any time soon.
Of course, your ultimate goal may be to get taken over by a bigger company for a big payoff. But then, you have to think about your future employees who might lose their jobs and so on.
Your ultimate goal may be to go public one day and sell your shares for a massive profit. Even companies that aren’t making a profit have massive IPOs today. But who’s to say this will last?
It is important to understand your ultimate goal because it will guide all your future decisions. Without it, you will be pivoting and meandering until you lose your way.
Finances and legal
When CB Insights analyzed the reasons why startups fail in 2018, they found out that the second most common cause is running out of money.
In other words, startups tend to run out of money.
Either they don’t start making money quickly enough or they are unable to attract additional funding, but the outcome is the same.
And this is not the only way in which finances can be an overlooked problem.
For one, you need to understand that it may be a while before you can start drawing any salary from your startup. Are you ready for this? Is your team ready for this?
Many startup owners also fail to predict their expenses correctly. For instance, paying someone is not just about salary. You also have to think about getting the right software for things like accounting, HR, etc. and this can also add up.
Finances can be tricky.
Unfortunately, the legal stuff can get even trickier and many startup owners aren’t really equipped to deal with these.
To start with, there is incorporating the company when it makes the most sense and doing it the right way. There are also innumerable ways in which to work out stock options, especially if new investors appear. In the European Union, you also have to worry about GDPR and how it affects data collection and analysis.
And this is just scratching the surface.
Often, it is a good idea to talk to an advisor of some kind – financial, legal. They can save you a world of trouble down the line.
Understanding your market
I mentioned running out of money as the second most common reason for startups failing and you probably wondered what the first one was. Well, it was actually a very simple one – no market need. Or, to put it in non-startupy terms – no one wanted the product.
This is probably the most difficult thing to predict – whether someone will be ready to pay money for your product or service.
It can be difficult to properly gauge your idea, its feasibility and the hole that you think exists in the market.
You have to be as detached and as objective as possible here, dampening your elation with what you think is the best idea ever.
Talk to more people than just your friends and family (who are bound to be on your side). Pick the brains of people who have had experience with successful new products or who at least understand business.
Think about other ways to do market research. Find out more about how companies in your field succeeded (people like to talk about their success). Check out sources which provide market data for free to young startups. Consider online survey companies and their opinion polling services.
Market research is difficult to do. Very difficult. However, skipping it is the easiest way to a failing startup.
There is more to think about if you are planning to launch a startup and these are just some basic considerations without which you cannot even start. Work these out and you’ll give yourself enough breathing room to figure out the other stuff.