It is natural that start-ups and their young, often inexperienced management take unfortunate decisions now and then. Sometimes this kind of decision send even a promising project on a down-spiraling path. This is really a pity. That’s why I gathered the most frequent mistakes which are likely leading to failure. I came across them in the many years during of exercising my profession as a Consultant Director, helping start-ups take off and ensuring a “safe flight path” in the market.
Here what I may offer you as my personal observations, thoughts and conclusion:
No clear communication, which problem the business idea does solve respectively which benefit it provides.
However, this is crucial in order to draw attention to the offered solution and create vivid interest and enthusiasm for it.
Not having properly checked if there is a significant need/demand/market and from whom respectively out of which market segments for the offered solution. Revenue will fall far too short as a result.
So make sure, for example through qualified research, that there are sufficient customers out there, whom the start-up’s solution would help and that there are also still enough of them who are willing to pay a fair price for it – and even got the money for that.
No clear highlight of the uniqueness of the solution (“Unique Selling Point”) offered by the company. Why, in God’s name, should a customer buy just from you and not from any competitor?
Present clearly and convincingly what makes your offer and your company so special in the market, making crystal clear at best in a way that one would not get that gorgeous solution from anybody else than that start-up. Thus you will be outstanding among the competitors and avoid the danger of getting overlooked
MISSING FOCUS! Especially when entering the market. Missing energy in the well-researched point of the main effort prevents breakthrough. Focus is written with a big “F”! by the way.
So select wisely your preferred target group of customers and concentrate your efforts in that direction. It’s a proven way to bundle sufficient power to penetrate the favored market segment. That goes as well for investments: select them target-oriented and diligently. Then employ consequently your funds like ”concentrated fire” instead of fiddling around and servicing everything a bit.
No sufficient and no well-founded financial planning, things kept often rudimentary. Well-founded capital needs over the next 12 months and next 4 years cannot be reliably determined. (“How the hell do they know how much they need and when…..?”) The investors do neither see what’s realistically in for him nor will build trust with the company.
Present well-thought planning, based on realistic assumptions, for your business volume (revenues), the profit, the liquidity and the balance sheet (here the investors see the development of the equity where they are “in”). All that for the next twelve months and the following four years. The investors are used to that and will appreciate to read through a commonly structured presentation of the financial figures.
Management of money too strict (“we keep it and do spend only what we are really compelled to”); e.g. reluctance to buy critical expertise which does not exist in the company itself – and thus remains missing.
It is no shame to ask for the help of experts in topics where you don’t have the expertise, so buy it. In case you might think that experts are expensive, well, how about hiring amateurs……???
Expenditures are too relaxed (“come on, we’ve still got enough last Friday afternoon in the bank account”): exaggerated manager salaries not fitting to the initial business volume, representative offices, expensive cars and further unnecessary overhead.
I guess no further explanation needed in order to conduct a wise spending policy with a sense of proportion.
Liquidity controlling is insufficient to non-existent (see also above). Unpleasant surprises thwart all good approaches, even if it is likely that the company will become profitable. In particular, the financing of intermediate consumptions in production companies are overlooked and drives the project insolvent.
Plan your inflowing and outflowing funds for at least six-, better eight weeks in advance and subsequently the next 3 to 4 months. Control every week your planning with realized in- and outflows of funds so you may detect shortcomings and wrong perceptions and plannings. That will protect you from unpleasant surprises and safeguard your solvency. Quite some companies, which had been profitable in principle, went bust, because they did not do this in a regular and consequent way. Hence, they got in a position in which they were not in a position to honor fully their obligations on time and had to file for bankruptcy.
In particular technicians and engineers in management positions: diving deep into the technology, products, services, processes etc., but rather superficial in market positioning and finance.
Determine diligently the market segments where you will have the biggest chances and stick to it. Again: FOCUS! Take as well care of your finances on a regular and professional basis: liquidity control, financial planning and financing structure, which means especially to always ensuring sufficient equity as a guarantor for a financially stable company.
Missing realization plan (goals, miles stones, actions items, deadlines, responsibilities……) makes veering off the road to success: missing control and corrections, procrastination and so on……….
Investors (and banks) like to get an idea about the path on which you will lead your project to success in the market. Here they can see in how far you have a clear idea about the big line of implementation (“strategy”), the necessary and defined actions, the required capacities and responsibilities, the goals for months, quarters, and years.
Last but not least: a (well-considered) unfortunate decision is still better than no decision at all ! So: “Screw it let’s do it!” (Richard Branson)
The article was written by Andreas Dittrich/ GVI Strategic Partner in Germany