With the start-up scenario growing and becoming pervasive in India, entrepreneurs are bubbling with new ideas, believing their idea to be the next billion-dollar one. Today, it feels as though everyone wants to be an entrepreneur. This is very heartening for a young country like India where, by 2020, 64% of our population will be of working age, highlighting the urgency for future employment creation.

The biggest challenge facing global start-ups is the high rate of failure. According to Harvard Business Review, over 80% of global start-ups fail in the first 18 months, and in India this figure is close to an alarming 90%. The ministry of corporate affairs in fiscal 2014 published that close to 100,000 new companies were registered in India, but how many of them will survive? It appears that when signs of trouble arise, many founders struggle to “save" the business, largely due to poor decision-making by the leader, and a lack of guidance from a skilled expert.

Hence, the big question now is—how do we ensure more than 5% of start-ups succeed? While the government and private sectors are working overtime to improve the ecosystem for start-ups, there is a larger, more fundamental question that needs to be asked: Are start-ups working on “an idea" that can become a business? How can they assess whether their idea is scalable, can generate sales and will attract funding? Or whether it is a lifestyle business, which has limited growth potential but still has capacity to be revenue positive?

GrowthEnabler was recently approached by the founder of an adventure sport business, who sold exclusive, high-value, luxury equipment to sporting adventurers, but was struggling with monthly cash flow, and losing money every month. With poor sales, a high monthly rental outgoing for their prominently placed high-street store and a very niche target market, this business showed limited potential to survive.

Enthralled by their exciting idea, this founder had neglected the key challenges to his business, firstly the adventure market is very niche, and within this niche market, there is limited demand for high end, and high-priced sporting gear, particularly on the high street. This is a lifestyle business—its high street location (unsurprisingly) could not achieve enough footfall to generate sales to cover rental payment, let alone growth the business and make a profit.

Starting a business is very motivating yet an emotional roller-coaster ride. Many have sacrificed the comfort of salaried jobs, risked career changes, and parted with existing businesses to start new ventures, aspiring to become a successful entrepreneur.

GrowthEnabler client Sahil Kukreja gave up his day job as a cricketer and has built a start-up in the health and fitness sector called Fiticket—a gym and studio aggregation business with its own currency. Today, only 0.1% of Indians use a gym, and sector growth is projected at 20%, which means even if only 1% of Indians begin using gyms and studios, this business has huge growth potential.

Equipped with a “can do" mindset and a “unique" idea, many entrepreneurs leap to search funds for their business, often prematurely. However, how many founders are confident they have thoroughly done all their homework and are equipped with expertise and experience to make informed decisions for their business? The 90% failure rate surely indicates the answer.

Hence, let us begin focusing on step 1 of the entrepreneurial journey—the question you need to ask yourselves before you take the plunge: Is your idea a business or a hobby?

Step 1

Business or Hobby: Many entrepreneurs who are obsessed with finding the next big “unique" idea are, however, not quite as obsessed with understanding the compelling need for their idea and identifying why people “need" or would “want" to buy it.

Potential clients need to know your product exists, why it is unique and why they should buy it.

Assess four areas to validate whether your idea is a business:

1) What is your special value proposition? Are you solving a compelling need? Is some else already solving it? If yes, what is so special about your product, why will customers come and buy from you?

2) Is your idea better than existing products in the market? Have you completed a comparative analysis of the product? Ask yourself, is your product cheaper, better or faster than what exists in the market today?

3) Is this a scalable business or lifestyle business? Look at the size of market and ask yourself, “Can I grow the business into one that will turn over millions of dollars?" Note, if the market is niche than it becomes more of a lifestyle business, i.e., it has growth potential, however, this growth is limited.

4) Have you got feedback on your idea from experienced experts? Speak to those who have taken this journey. Ask for their feedback. Get some guidance.

Your first idea does not have to be the best idea. Don’t worry if it’s not workable. If the idea is going to fail, let it fail fast. This experience would be the gained knowledge to better the next idea.

The author is chief executive officer, GrowthEnabler

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