The most tragic failures happen when people inside a startup don’t care about customers, or don’t cultivate a culture centered on the customer.
Street Talk
Expert Opinion
Understanding the dynamics of business in the background of startups in the last one decade is an interesting story of success and failure. During this period, we have witnessed the startup ecosystem in the country growing to become the world’s third-largest, following the US and China.
According to a report quoting official data, India’s startup ecosystem is set to grow at an annual rate of 12-15%, with the country ranking second in innovation quality among middle-income economies. By January 2024, India boasted 111 unicorn startups valued at over US$ 350 billion. The rise of women-led startups, now at 18%, further highlights the inclusivity and potential of this thriving sector.
Notably, India’s tech startup ecosystem, as per the report of the Nasscom and Zinnov for 2023 pegs India’s position as the third-largest tech startup ecosystem globally, with over 950 tech startups established in 2023, contributing to more than 31,000 tech startups in the past decade. The cumulative funding, as per the report for these tech startups from 2019 to 2023 exceeds US$ 70 billion, demonstrating robust growth and investment in the Indian tech startups.
It is worth mentioning that the Startup India initiative was launched by the Government of India in 2016. The objective is to boost startup culture and create a culture of entrepreneurship in India.
Here it is imperative to know that a company in the early stages of its operations is called a startup. It can have one or more founders having an appetite to develop a product or service for which they believe there is demand in the market. Technically speaking, startups are a high cost affair with limited revenue and are dependent for capital from a variety of sources – angel investors, venture capitalists etc. These companies take several years to register a profit, which means the investors and founders of a startup need a high level of patience and consistency in their line of business in early years. This patience and consistency would be the deciding factor of a startup. Of course, the business model has to be in line with the market dynamics.
When we look at the parameters required for peddling a startup successfully, we find startup success ultimately comes down to people inside the organization and those outside it (customers). In other words, a startup is basically a business and any business is a human endeavour where humans get connected to each other through this medium of contact. Any disconnect or lack of alignment between the two groups of people involved in a startup leads to failure of the business. And this lack of coordination between two publics of a startup has been a major cause of their failure. The biggest, most tragic failures happen when people inside a startup don’t care about customers, or don’t cultivate a culture centered on the customer.
Usually, success stories find place in major media headlines and amid these successful stories, failures hardly find takers in media. It is a hard fact that startup failures are far more common. Let’s understand and dig into the reasons why startup failures are so common. A global study reveals that nine of the top 20 reasons for startup failures – and five out of the top 10 – were related to customers – not meeting customers’ needs, not listening to them or even ignoring them.
In fact, the number one reason why start-ups fail, picked by the study, was “no market need.” In other words, there were no customers.
Basically, startups fail when they are not solving a market problem. Instances are in abundance when a startup had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc, but didn’t have technology or business model that solved a pain point in a scalable way.
Product design is another reason that chops startups as these products fail to meet customers’ needs. The startups that spent way too much time building it for themselves and not getting feedback from prospects tend to fail. So, without listening to prospective customers, a startup ultimately fails.
Yet another reason for the failure of a startup is that the right people are not on board. It is also of utmost importance that the founding team of the startup has to be skilled in its area of profession they have chosen. As put by an acquaintance who is an expert in counseling youth for entrepreneurship, if the team can’t build a minimum viable product (MVP) on its own (or with a small amount of external help from freelancers) they shouldn’t be founding a startup. It would be a mistake which only leads to failure of the venture. Even lack of alignment among the founders and/or their investors is also bound to crush the startup just at the germinating stage.
Here it makes sense to list some common challenges so that those aspiring to go for a startup initiative don’t make the same mistakes that others have already made.
A good idea is not enough to achieve success. An entrepreneur assuming that a brilliant idea is enough to achieve success in the business venture is not good thinking. They should not be under the notion that their great idea will lure customers to beg for it. But in reality, the customers don’t. A business model has to account for all costs, the required technology solution, the marketing strategy, and different methods of monetization. They need to better understand how they will run their business and operations and how to attract, win and retain customers.
So the basic thing is that good ideas, of course, matter. But adopting a right strategy of doing business in the backdrop of these ‘good’ ideas can only make the startup successful.
Poor market research only leads to failure. It leads to misunderstanding of the target audience and, as a result, a product that no one wants.
There are some common causes of poor product-market fit. For instance, the value of the product is not demonstrated to make people actually use or buy the product; the timing of introducing the product in the market is wrong; and the product doesn’t solve a problem for enough people.
As suggested by experts, startups should validate their products using pilot projects before launching. Or alternatively, they can conduct beta testing to significantly reduce the risk of failure and market rejection. One more solution is to build a minimum viable product (MVP) that allows entrepreneurs first to build the core features of a product, test it, and then develop the next version according to user feedback.
Scaling in a hurry attitude shown by the entrepreneurs also leads to startup failure. The goal of many startups is to not be a startup anymore. They are all in a hurry to scale – hiring people, getting funded, releasing new products, entering new markets. They want to grow too much too soon. Unfortunately, not everything is as smooth as it may seem.
Challenges with the development team such as lack of technical expertise, ineffective management, poor communication and poor monetization skills contribute to the failure of a startup.
Let the above findings serve as warnings for aspiring entrepreneurs. People must be your priority and they must be aligned. Your customers and your people drive your business.
(The author is a veteran journalist/columnist. He is former Head of Corporate Communication & CSR and Internal Communication & Knowledge Management Departments of J&K Bank)