There’s no one easy answer to this question. If there was, we’d all know the root cause of failure and more businesses would succeed. It’s easy to say there are almost as many reasons for business failure as there are new businesses, but that’s not really true.
After spending a third of my career working with startups, I can definitively say there are several very common mistakes among early-stage companies. Avoiding these pitfalls or finding ways to deal with these challenges can dramatically alter a startup’s chances of long term success.
First to Market
All too often, entrepreneurs tell me with confidence their new product has no competition. When they say there’s nothing else like their product in the market, my first questions is why? Are you really that much smarter than everyone else around you? Is it because other people have tried and discovered, as you will shortly, that there is no market for this product?
The first and most important step if you believe you have a true first to market product is to do some serious market research to validate market needs and market size. It’s great that 10 of your drinking buddies “love the idea,” but will hundreds of people like them really spend the money when you ask for their credit card? Are there enough people who could potentially spend the money to make the investment in development pay off?
Discovering a market exists for your product is an important first step, but there is a lot more work ahead. If your solution is so dramatically different from anything else that’s out there, customer education will be critical. If you find yourself saying customers would buy your product if they would just take the time to learn about it, you have a problem. However, it’s a problem that can be overcome with significant marketing resources dedicated to consumer education.
Best to Market
The other major category of failures, particularly among tech startups, centers around the idea of best to market. In this case, the product pitch begins this way: “Well, it’s sort of like (insert application name) but faster, easier to use, elegant, simple or just simply better, etc, etc, etc.”
Best to market is an effective business strategy. Japan has built an entire economy on re-engineering and improving on the work of others. They didn’t invent radios, televisions video recorders, cell phones or even sushi. They just learned how to make these items better, faster or less expensive.
This strategy can work, but you need a significant amount of technical expertise. Be realistic if you’re going up against an existing product or service which has already acquired one or two rounds of angel or venture funding and/or has several hundred employees working on the same problem that you’re working on. You’re going to need the resources to break down their application and re-engineer it.
Remember, better is not enough to win the battle for market share. When you are going up against an established player, you have to consider the switching and customer education costs. I use several software tools which are not necessarily the best solutions, but after several years of using them I’m invested. I have history, a level of comfort with the platform, and an unwillingness to start all over again. If the cost (time and effort) of moving from one platform to another is more than the savings a user will enjoy by using your new product or service, it will be hard to get them to switch.
The are no guarantees, but figuring out how you will overcome the challenges of being first to market or best to market is a good place to start your new venture.
Want to put some of these skills to work? Join us for the next Indianapolis Startup Weekend, November 16 – 18. And if you’re not in Indy, you can still find a weekend event near you.