How do you begin a tech startup and keep it on course? I have been asked this question many times and inspired me to write this piece.
A start-up enters the market to launch products/services and achieving these goals requires planning and good management skills.
Before launching a start-up, founders do business projections¹ that overexcite them and fail to see the market reality.
However, let’s be honest here: Developing a start-up from the ground up sometimes gets worse as new problems emerge.
Cash flow problems affect start-ups with cash running out during important phases of operation². Keeping a steady flow of cash is a problem for many start-ups because of poor planning and bad choices.
From product development, marketing, office expenses and hiring staff members, cash is king.
The allocation of resources is critical as a start-up enters a competitive market. You must think strategically³ to avoid pitfalls and achieve better outcomes.
Developing a start-up from the ground up sometimes gets worse as new problems emerge.
I actively mentor, advise and invest in startups in the New York area, and I understand potential underlying issues that could lead to failure.
In this article, I will break down challenges faced when keeping a start-up on course.
Stay tuned for more as I navigate the start-up scene and offer insights from case examples of start-ups in New York City and Silicon Valley.
Overview of why startups fail
Market demand problems push startups out according to CB Insights⁴. Startups develop products and services without considering customer needs leading to poor performance.
Customers will not purchase products they do not need and this is where startups get it wrong.
Cash flow problems including lack of financial management⁵ skills create problems for most start-ups. Without cash flow, a business will eventually declare bankruptcy.
Incompetent teams hurt the prospects of a start-up. Teams with no skills fail to match market expectations leading to failed operations.
Poor marketing and wrong price margins affect the performance of startups. A business with incompetent marketing skills struggles to make an impact in the market.
Stages of Startup Development
Let us review some stages of startup development to better understand challenges and failures.
1. Startup Development
This is the first phase of initiating a startup where founders and co-founders develop ideas for their business model. At this stage, startups have brilliant ideas but lack practical execution⁶ in the real world. One recommendation here is that startups should focus on their core business and consider market size, revenues and growth projections.
Involves getting market insights and doing research on the business model. Startups should focus on the technology that will work for them at a cost advantage as this aids to navigate the competitive market.
3. Product Line
You should define your product line for your business to start well in the market. You cannot launch a startup without understanding your niche market, its competition, and future prospects.
Define your product or services and realize the importance of a clear road map for your business market.
Above all, customer experiences matter at this stage.
Test and validate your ideas and their application in the market.
Starting a business and entering the market without testing your product is a recipe for disaster⁷.
Startups fail because of poor execution of prototyping that brings the wrong ideas about the market.
One simple tip: Find what works best for your business model and be flexible in execution as long as you make the right decisions at each stage.
5. Product Development
A startup now understands its product line and what better way to advance to the next level than implementing those ideas? Your startup needs to work on the product line as it enters the market to build a customer base. Factors such as quality management, solutions, and management approach come in at this point.
6. Growth Phase
Entails developing business structures such as teams and infrastructure.
Startup founders should be keen to capitalize on the previous success achieved in the initial stages.
The startup should recognize new challenges and develop measures to handle them.
Business Model Canvas
The business model canvas highlights key areas that startup founders and co-founders should keep in mind when executing strategic plans and organizing the workflow. Every startup needs an understanding of trade-offs in their line of business to capitalize on opportunities and increase market share.
Customer management is at the center of the business model canvas since customers determine the success or failure of a business⁹. Financial resources and management come second where startups should balance their books to avoid failure¹⁰.
Here are start-ups using the business model canvas
Automation Anywhere¹⁸ uses the business canvas model with the start-up raising $290M in series B funding. The robotics automation platform developed an effective workflow plan to serve target customers by refining product lines. Salesforce and Goldman Sachs are some VC funders who approved the start-up’s strategic plan.
Reddit¹⁹ funding of $300M came as the company expanded its content strategy and adopted a social model. Increasing user engagement through sharing links attracted new VC funding for Reddit as the online platform continues to grow its user base.
Opendoor²⁰ is using the business model canvas with a recent $300M funding. The start-up facilitates property ownership for clients by simplifying purchase and selling. Venture funding from GGV Capital, SoftBank and New Enterprise Associates enabled Opendoor to boost it’s online homeownership services.
Samsara²⁹ is an IOT start-up enabling cloud, software and hardware analytics for AI operations with equity funding of $530M. Venture approval for Samsara was in line with its analytics and real-time solutions that aligned with customer service.
Our last use case is RigUp³⁰, an on-demand online platform for skilled workers in the energy sector. Venture funding of $300M in series D enabled the start-up to scale operations and increase its user numbers within a short time.
The rule is simple: Every startup needs a killer pitch deckas you present the overview of your company to investors.
Airbnb²¹ succeeded because of a great presentation that won investors. By the time seed funding was approved Airbnb was already making forays in the hospitality niche market.
The lesson here is that startups need to reorganize their business plans and develop great presentations to woo new investors.
Here is a pitch deck example from Airbnb
Most startups get it wrong with pitch decks and perform poorly in the market. Funding is the lifeline of every startup and without a tangible business plan, survival becomes hard.
Wealthsimple²² is a startup from Canada whose success resulted from a good presentation.
Unlike traditional investment companies and banks, Wealthsimple is an online platform that consults, manages and assists customers to derive value from their investments.
The Uber²³ presentation made it clear about their target market and recommended solutions for effective customer transport. Uber informed investors about its click car service idea that would allow customers to use their smartphones to order a cab from any section of an urban area.
MapMe²⁴ from Israel enables users to enjoy maps on their devices including computers and smartphones without coding skills. With an estimated 20,000 plus website visitors, MapMe pitched its idea to venture investors¹² by creating a great 14 slide presentation.
Thanks to this presentation, MapMe secured $1M seed funding and allowed the company to jump-start its operations in the maps market.
Startups need to pitch memos to acquire capital. Despite startups such asRippling securing funding without a pitch memo, new startups should use pitch memos.
A poll conducted by TechCrunch¹⁴ on startup pitch memos paints a dim picture of the current situation as most startups scored low in this area. Venture investors need clarity about their investments and by using a pitch memo, you inform VCs about your interest.
Mixpanel²⁵ used its pitch memo to get VCs approving their funding deal. According to the CEO of Mixpanel, their pitch memo made the difference and secured $65M in series B funding.
The startup enables the world to learn from data sets and use them for decision-making. By convincing investors that organizations and people make guesswork in their analytics, Mixpanel got new funding.
The pitch memo of Moz²⁶ encouraged investors to fund the company given their market projections and revenue forecasts on inbound marketing and SEO.
After sending their funding proposal to VCs, Foursquare²⁷ acquired funding within a week and enabled the company to launch.
Startups can learn from the Foursquare example by planning and developing a well-summarized pitch memo that outlines action steps the business will take to achieve market goals.
Adpushup²⁸ is our last startup example of why many startups fail. The A/B testing model enabled Adpushup to increase ad revenues. According to Adpushup, their pitch memo included problems solved, solutions and opportunities¹⁵, securing them funding of $800,000.
Testing, Prototyping and Validating Ideas
Ihave been attending pitch competitions, pitch nights and hackathons within New York and San Francisco and from these experiences, I understand why most startups struggle. It is because startups have no understanding of their business models leave alone testing, prototyping and validating their ideas.
How can you create a startup that needs funding without testing the market? This is what holds back startups from realizing their objectives.
Have you ever participated in a pitch competition? Well, this is important since you need to get your ideas out there. Innovation is critical for startups and through pitch competitions, startups learn about the real market and refine their business models.
Let us check out some pitch competitions that I have attended and how you can use the experience to avoid failure of your startup.
1. Y Combinator Demo Day
Has your startup made it to the Y Combinator accelerator program? Then this is the best pitch competition you can use to get a realistic view of your business model. Most startups fail because of business models that cannot work in the real world.
By attending the Y Combinator Demo Day, be assured of a real challenge from other startups that could make your idea obsolete. Take up the challenge and attend this pitch competition today.
2. Tech Crunch Disrupt
Pitch competitions make sense when winning startups take home a $50,000 prize and VC opportunities to fund their operations. Tech Crunch Disrupt is one of them.
Attend Tech Crunch Disrupt if you have what it takes to succeed in a competitive market. This is a great pitch competition that will expose you to the real market, funding and innovative practices that will set you apart in the market.
3. Hatch Pitch
At Hatch Pitch, competitors need a valuation of under $1M for them to secure funding and 2 years minimum operation. Startups at Hatchpitch present their strategies to a panel that votes on their idea. Lastly, you need to be a co-founder of a startup if you are not the owner.
Have you ever thought about practicing your pitch in front of an audience as you prepare to face off with VCs as you present your funding proposal?
Pitch nights is a great way to keep you informed, correct your mistakes and help you forecast problems that prevent startups from realizing their objectives.
Public speaking is one skill you will learn from pitch nights by presenting before a small audience that will not intimidate you.
By attending pitch nights in New York I understand why startups fail to reach their goals: Lack of practice. Use pitch nights for startups held within your location and you will see the benefits.
Another effective way to test and validate your startup ideas¹⁶ is by attending hackathon events. Hackathons bring together computer developers such as programmers into an open session that allows them to collaborate and share ideas.
Startups with a hackathon background do better compared to those without. I attend hackathons in New York every month and I come across many startups trying to get their ideas in the open.
1. The BASE Hack League Hackathon
The BASE Hack League Hackathon took place in December 2019 at Bronx Academy for Software. Startups prototyped ideas and competed with others in front of a panel.
2. The Brooklyn Tech Week
The Brooklyn Tech Week hackathon event taught me the value of startups realizing their selling point and using it to win customers. If anything, startups undermine their core operations and market hence fail to deliver expectations. From Brooklyn Tech Week, it was evident that startups with a good hackathon background navigate the first days and take off.
3. AI — Its Purpose & Power
#AI — Its Purpose & Power hackathon comes third and highlighted technologies used to harness human potential such as AI and machine learning. Startups lack direction because of poor market understanding alongside incompetent technologies.
The startup culture is growing and with technologies such as AI and machine learning helping businesses to navigate the competitive market, the future looks bright despite common challenges that emerge.
Startup founders should prepare well when launching their operations and learn from experiences as seen with hackathons, pitch decks, and pitch memos. These events will prepare you psychologically and give you ideas about making your startup successful.
Many startups are doing great things with innovative solutions¹⁷ but disregarding market principles leads to bad outcomes. Venture investors need assurance about the viability of a business model and require strategic thinking and planning for startups.
From my experience attending hackathons and pitch nights, I agree that startup development requires hard work, skills, and adequate preparation.
¹Business Projections, ²Cash flow, ³Strategic Management, ⁴Start-up Failure, ⁵Financial Management, ⁶Start-up Execution, ⁷Product Testing, ⁸Phase of losses, ⁹Customer Management, ¹⁰Strategic Choices, ¹¹Pitch Decks, ¹²Idea Pitching, ¹³Start-up Funding, ¹⁴Start-up Pitch Memos, ¹⁵Opportunities and Solutions, ¹⁶Testing and Validating Ideas, ¹⁷Innovative Solutions