All 20 of these issues can be boiled down to three main problems, with the rest operating more like symptoms of the real problems:
- Not the right management team (Leadership Risk)
- Market problems (Market Risk)
- Product Development (Technical Risk)
The Importance of a Strong Leadership Team
There are many qualities you should look for when attempting to find a capable Business Leader and Management Team. Business founders’ might have an amazing idea and an untapped market, but they might not be the best person for a CEO role.
Investors look at the CEO to lead the company forward, making a bet on the company and the leadership at the same time. A CEO is not meant to develop the product or service for the startup. This is why sometimes the founder of a startup is not the best fit for the CEO of that startup; the founder might want to focus more on developing the product than developing the business as a whole.
Check out the very important tasks of a capable and strong CEO:
- Develop and sell a compelling, inspirational vision
- Develop and execute a strategy
- Set clear goals, focus, and execute
- Understand strengths and critical gaps within the company and team
- Attract and retain capable advisors
- Cash management
The CEO is also in charge of developing some type of advisory group, which can help the company overcome obstacles and attract investors. Advisors can add skills that the CEO and management team might lack, filling gaps in their knowledge. An advisory board will also help the management team build accountability and have some sense of discipline attached to their work. Advisors have no legal obligations to the company and can be compensated or not (depending on their agreement with the company).
When looking for individuals to serve in an advisory capacity, a CEO should search for:
- Not Less than 3 individuals with strong values that are in alignment with the company’s values
- People committed and available to the company
- People with diverse skills and experiences
- Recognized experts in the industry
Key Functions in a Startup
- Sales and Marketing
This key structure can be applicable to many different types of startups.
Some of these positions can be advisory positions and others should be full-time employees. For example, some startups use outside counsel instead hiring of a full-time lawyer. Finding individuals with the correct skill set for each of these jobs can be challenging, but it is ultimately essential for a healthy startup.
There are two main approaches that startups take in order to go to market. The first approach is not recommended. This involves an inventor having an idea for a product and immediately raising funds to develop it. Then they will attempt to raise capital again in order to complete their minimum viable product (MVP) and eventually take it to the market.
But this method leaves out one important step: making sure that there is a market need for the product. Sadly, some startups get so hyper-focused on creating a product, they forget to stop to ask themselves if anyone actually needs it. This approach is rarely successful, leading to the startup’s failure and thousands of dollars wasted.
The other, more successful, approach involves validating the market need before developing the product. This would involve spending a small amount of money right after having your idea in order to validate the market need for your product. Once you validate that there is a market need for this product, you can raise some capital and develop a minimum viable product. Then you want to ensure that the MVP is still desired in the market, before eventually raising capital and going to market.
Benefits of validating the market need early:
- Minimize risks early
- Identify your customer
- Identify and validate unmet customer paid
- Build inexpensive prototypes
- Obtain customer feedback
Even if you believe your product is completely unique and the market has never seen anything like it before, it does not mean that customers want/need your product. The competition for these types of unique products is however the consumer is solving your product’s solution to their problem now. Upon market research, you might find that customers would rather stick to their current routine than add a new product (even if the product makes the process easier).
Validating Other Major Business Model Assumptions
After doing research on the market need for your product, you will want to learn more about the industry and your future customer. You can first begin by evaluating your competition to understand its strengths and weaknesses. This can be done using the voice of the customer (VOC) interviews and other survey types.
Next, you will want to ensure that your company has a differentiated value proposition. You should also confirm that your value proposition resonates with your potential customers. Here are some more things you might want to confirm with VOC research:
- Time to acquire a customer
- Stickiness of a customer (How easy is it for them to leave?)
Another great exercise to complete before going to market is a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. A SWOT analysis allows you to focus on both internal and external factors that might affect your company. Creating a SWOT analysis can also help you plan for the future, especially when attempting to mitigate threats and drive opportunities.
In summary, there are many different factors that can cause a startup to fail. The two best things to do in order to avoid this are to maintain a stellar management team and to validate that there is a market need for your product. Throughout the life of your startup, you should also aim to complete the voice of the customer (VOC) and SWOT analysis in order to better understand your market and its customers.