Market research firm CB Insights conducted a post-mortem of 101 failed start-ups. They found the #1 reason start-ups failed was because there was no market need. A startling 42% of start-ups were pursuing a business idea which did not have a product or market fit. At GrowthEnabler we feel that this business element is in a founder’s control. If it is identified and tackled early on, it will not lead a business to failure.

Many founders we meet are naturally caught up in their new business whirlwind. The excitement and eagerness to execute often lead to glaring oversights, a neglect of the changing market need, and even a blind eye to the big warning signs, causing the quick downfall of an otherwise would-be successful business.

The start-up journey is long and bumpy. As founders draw closer to the launch of their business, they would have validated their value proposition, market tested the product, identified and interacted with potential clients, perfected a profit forecast, and built a skilled team.

This is the critical moment; they must take a step back and take a moment to pause and reflect on the journey so far, and ask themselves an important question, “Have I missed anything?" At this exciting and critical stage, most start-ups have. The big question is whether you have missed something so important that it will harm your business’s success potential.

Despite thorough validation work, the truth, which most start-ups seem to forget or ignore, is that they are still testing their hypothesis. The best word to describe this hypothesis is a guess. This is the critical juncture at which your business model canvas has to be revisited.

These are the words that start-ups do not want to hear and many ignore. It is so easy to be caught up in the excitement of an idea. However, if you do not understand your business like the back of your hand, and have not truthfully acknowledged its strengths and weaknesses, you risk crashing and burning. Do not be scared of finding weaknesses in your business. Ask yourself (and be honest): is your business
fail-proof?

In December, we were sitting with the co-founder of Splyt, and completed a “is your business fail-proof" exercise. Splyt is a London-based start-up which has created a taxi ride pooling app aimed at non- or semi-digital taxi firms. The business plan was reviewed with a critical question in mind, what were all the things that could go wrong? Why would a prospective taxi company consider using this app? How can this product differentiate from what is already existing in the market? How do we create a revenue share model with other taxi companies? We reviewed the sale cycle and assessed how much time was needed to close each contract or sale. We forecasted how many deals could be closed in the first year. Reviewing the business plan and journey to date helped to identify app features that would be more attractive to potential clients and their business needs, and also provide an innovation in the taxi industry.

Founders need to ask themselves these questions.

1. Is it a fail-proof business? Look for all the hypothesis you have considered so far and find out what can go wrong. Test all your plans to the nth degree. Look for every small detail and check for anomalies. Entrepreneurs are an optimistic bunch, typically equipped with a positive mindset, making them confident they can put out fires as they arise, but it is key to ask yourself critical questions at every opportunity. This gives founders the confidence to weed out small issues or guesswork that can go wrong in future.

2. How can you make the business viable? Ask yourself this question as if you are an investor putting your money into this venture. What would you like to see to ensure this business will be successful and will provide good return on your investment?

3. How will you market the business? What is your social media strategy? What is your partnership strategy? Why do you think it will work?

4. What is the cost of your customer acquisition? Have you looked at it? Has this been added into your cost? What is the average cost of customer acquisition in your segment? Have you compared your cost with others? Are you spending less money? If yes, then why? How does this impact your profitability? Has anyone done this in the past? What was their learning? Have you applied that learning?

5. Have you considered business sensitivities? Is your business seasonal, for example, where you experience sales at peak times and off-peak is slow or not revenue-generating? How will you plan your earnings, cash flows and target accordingly?

6. What’s your sales cycle? Do you know your sales cycle? How long will it take to sell your product? Days, weeks, months? How many people are needed to close one deal. Is this scalable? Have you factored this in your cash flow?

7. Know your business inside out. What are the cost of goods sold for every unit? What are the big risks? How will you mitigate those risks? You may not have answers to all the questions, but have you addressed these questions? Every investor knows your forecast is at best a guess, but they want to know if you know your business and all the projections in it.

Test everything to the nth degree. Ask yourself, how can this business fail? Once you are confident you have covered all the risks, you’ll be able convince all stakeholders why should they buy from you, join your business or invest in your business or partner with you. This is the ultimate winning proposition.

Rajeev Banduni is chief executive officer, GrowthEnabler.

Close