Why Countless Start-Ups Meet Their Doom?by QArea Expert on November 2, 2016
Ok, did you know that 11 new small businesses meet their doom every single second in the US alone?
I work in a software outsourcing company. In simple words – we develop and test products for other businesses. The job is great because our team gets a chance to work with an enormous amount of tech-related businesses, both big and small.
And, while our sales division prefers Enterprise level customers (that’s where the real money are), my personal preferences lie with young start-up owners. It’s just too fun to interact with young, engaged, prominent people that are overfilled with world-changing ideas. Or so they believe.
That’s why it’s always sad to see some of them fail, especially after we’ve invested both heart and soul into development.
People are different, the problem is not!
Every now and then, a person walks into our office and talks about his potentially profitable idea. These people are usually experienced entrepreneurs that have a running business to back them up.
Sometimes we enjoy engaging conversations with students that want to start making millions right after they graduated.
One thing unites them: they have an idea. Yeah, it oftentimes makes little to no sense, but after a couple of discussions, it obtains a solid shape worth considering. That’s the good part.
There is also a problem most modern startup owners share. They do not understand the very way modern business operates.
Some folks are more old-fashioned and they look at cloud-based tech with a grain of salt. Others think that they can push their fancy Caffey websites without a mobile application to support them.
In simple words – people expect a website to solve all of their problems by magic. No ideas about monetization, no market research, no competitor analysis, no nothing!
People really believe that their idea is a creative masterpiece on its own. Their fancy talking toilet seat will just attract customers with its originality disregarding the absence of multi-channel marketing and solid corporate IT infrastructure.
Surprise – business doesn’t work like that!
You can invent Perpetuum Mobile in your basement but what’s the point if there won’t be a single person in the whole wide world that knows about it? A website can not attract leads, press, love, support, and loyalty on its own.
Solid technological infrastructures are the cornerstone that supports all of the Unicorns we love today. Can you imagine Uber with nothing but a website? The idea is not a technological solution. Uber is about cars. But they have an app, prominent marketers, and creative designers and so on and so forth. Why shouldn’t you?
Or, more importantly, why would you disregard tech for the sake of your faith in an idea that’s not proven as efficient yet?
Who is the owner?
We love clients that know exactly what they need. Alas, more often than not, young entrepreneurs knock on our door without a complete idea. They don’t know what they want, but, more importantly, they have no idea about what they should ask for!
There is a whole debate to be made about the importance of business estimations and it will most certainly end with accepting one simple truth: planning is the key to success. Ultimately, there are two major types of start-up owners.
- Type #1. These are determined business owners who need successful business models and specified processes. Certainly, we can provide business expertise and polish the idea, but if the client knows what he wants, it is much easier to work with him.
- Type #2. Uncertain entrepreneurs who do not exactly know how their idea should work. These business owners make the hardest cases. Sometimes, weeks pass by while we are trying to identify some core specifics of the project. This surely balloons the budget and makes the startup less profitable for both the developer and startup owner.
We, developers, provide a fairly simple service – we build a technical solution to a problem that our client has. That’s it. We are more than just interested in project’s success. However, we are not the owners of the product.
The ambiguities of IT
There is no need to break down how we work with type 1 clients, they know what they need. However, many inexperienced startup owners simply do not understand the importance of the IT aspects that their project has. This causes a problematic phenomenon – an unknown known. Together with the client, we can certainly create a functional business model. However, while we vaguely see the goal, the road is uncertain and full of unexpected obstacles.
There is a harmful delusion that has a hazardous nature: some people believe that their idea is simple to develop and can start generating income right away. This is the worst delusion to have. Unfortunately, many modern startup owners are delusional in this particular regard.
The startup and its IT infrastructure have a hard way before launching and starting to bring in profits. There are steps to be made and some of these steps turn out to be a mistake. So how do we build a startup?
- Step 1. The idea. Even a basic understanding of your future project is often enough to outline its core features and how to build its IT infrastructure. A big social service will definitely need a liable backend to be scalable. An e-Commerce solution will definitely need multiple marketing channels.
- Step 2. The prototype. We love agile project management methods. This means iterations, one following another! Your target audience should have a prototype and provide feedback. The earlier this process starts, the better it is for the product. We still do not have a complete picture of the IT aspects and keep developing them, removing or adding features and structures.
- Step 3. Iterations. With lots of iterations, after dozens of mistakes, we create a product that has some distinct features. However, this product may vastly differ from the original idea that was brought to us by our client.
- Step 4. The release. When we finish our work, the product has its shape, its core functionality, and is ready to be used as intended. Oftentimes, the final version of the product is nowhere near the idea. The idea evolved and transformed into a much more efficient product.
These 4 steps are obvious for any developer. Nonetheless, many startup owners do not understand it. They see their idea through the “green glasses” and believe that their vision is ultimately correct. This is most likely not true due to how diverse the competition in any domain. Various companies compete for the attention of customers on multiple levels including content marketing, social media, etc. In order to stay relevant, you simply need to adapt your project to the reality which justly looks harsh.
The unseen side of any modern startup
Imagine a company that grows and delivers baby carrots. For a simple company, the prospects of IT are concealed. However, such prospects exist and any startup owner should take them into consideration. What IT aspects does a baby carrot delivery company have? Let’s go step by step and break down the business model and how to improve it in the long run.
- We gather and systemize data about customers, creating a solid foundation for future usage of various marketing usage. We create a functional database and start working with it by simply calling our clients or sending them short commercial messages.
- We create a mobile application for those who need baby carrots. This application will allow our customers to make orders. We continue gathering information about our users.
- We develop scripts that analyze our customers’ behavioral patterns. How often they make purchases or how frequently they run out of baby carrots. This enables targeted notifications and personalized marketing.
- We start automating as many processes as possible and move to the cloud to expand faster.
The amount of IT elements that complement our startup scales with the growth of the company and its market share. This is why every single IT aspect of a startup needs to be scalable. It is easy to open a small grocery store nearby and cater to local customers. However, this is far from being a million-making startup. A true startup would be oriented to conquer the whole world with lots of grocery stores.
Rapid growth and fast expansion are impossible without a properly functioning IT infrastructure. A startup needs room to grow and technical potential to evolve. Additional departments, administrative processes, and the expansion of your network will most likely demand you to have a flexible IT infrastructure with lots of various processes being tangled together.
Surviving the “death valley”
The first couple of months is crucial for any startup. It is the moment when the company goes through the “Death Valley”. It is a scary place, a dark place. Usually, startups do not jump into welcoming arms of customers. Quite the contrary, they have to fight for the spotlight and provide exceptional service to stay relevant. This is impossible without a stable backend, bugless software, and innovative ideas.
This is something that many startup owners fail to realize. They believe that the market is like a friendly meeting at the university campus where every single guest is a good guy and people collectively “boo” bullies. However, the market is a tough place where you have to compete and survive. It is imperative to have efficient tools at your disposal to do so.
There are two key issues pivotal for a startup owner that wants to survive his journey:
- IT tools are necessary and provide the most reliable support for your business model.
- IT tools need to be efficient and sharp with a clear purpose and accented features.
For example, you start a business that sells T-shirts. You realize that most of your potential clients are teenagers that frequently use apps to make purchases. You decide to create a complementary mobile application with a built-in chat. Sounds like a good idea. However, you may not fully understand what chat features are important for the audience or make your application stand out. Many startup owners do not research the market.
The lack of research causes a very uncomfortable issue: clients mistakenly force us to work in the wrong direction. Obviously, we will figure out the best way to implement the idea eventually, but it often happens way too late and costs more than a startup can handle. It is easy to imagine IT aspects that can benefit your business model, but it is harder to actually understand how these IT aspects work and what purpose do they serve.
Expanding our limits
With so many startups appearing from seemingly nowhere, it is guaranteed that many startup owners do not possess a necessary level of expertise in terms of IT to successfully build a successful business model from scratch. It is important to understand that for us developers the success of the products we create is very important. We want to develop high-quality software and innovative groundbreaking solutions and we want them to succeed.
This is one of the reasons to drastically expand our regular offers and add services that we did not need to have before. There were times when we offered only technical services such as maintaining backend and creating software. Today, we have to account for the fact that many clients need additional IT expertise to succeed.
Rich business analysis.We have to analyze business ideas and actually scout the market. Such consultations provide deep insights for our clients.
Idea testing. Often, our clients do not have experience in beta/alpha testing and we have to deploy early iterations ourselves to receive feedback and gather information critical for the development.
Managerial insights. We help our clients to better understand how to run their business considering its IT aspects. It is much easier to hire people if you know where to find them and who to look for.
Services listed above are not necessarily paid services, they simply complement our technical expertise. However, it seems that without these services, it is nearly impossible to build a successful business process or solution for many clients.
We have to build such solutions and also educate our clients in terms of the importance of the IT aspects that support and accompany said solutions. Oftentimes, our vision of the product greatly differs from the client’s one. This wall of misunderstanding can be removed only through complex communication and education.
Every modern startup has inherent IT aspects. Every modern startup can be enhanced via adding features, IT infrastructure elements, and automated solutions. In addition, each IT aspect connects to a plethora of associated processes and infrastructure elements.
This is an issue only due to one simple factor: our clients have a rather limited vision of their projects in terms of its IT components or do not fully understand how various features and solutions work.
The paradoxical thing is that while IT aspects keep getting more and more complicated, many startup owners still live in the past. Hopefully, this will change soon enough!