Startups must heed many warning signs

Startups can face big risks.

Startups fail all too often and the failure rate is far too high

Many people in startups are drowning in self-pity and buckling under the strain of debt. This is usually because their business idea, in reality, was built on exaggeration, or inflated expectations and nil profit. Be sure you’re not overlooking the fundamentals before investing in a business in haste. Don’t leave a salary to fulfil a dream, for the wrong reasons.

Most experienced business people will agree that time management in startups is absolutely essential to starting on the right foot. Perhaps the biggest thing to improve your time management is to raise your energy levels. While most successful people believe the strategy is important, they know execution is everything. Become action orientated from day one, execute, adapt, execute some more, and build a solid operation based on what works well.

There’s always some logical reason people don’t act when they should. The idea of taking action before you have a perfect plan is another form of procrastination. You can make an exception when you’re flying aeroplanes, doing brain surgery, ab sailing or dealing with explosives.

Startups need to ensure the fundamentals are right

The fundamentals of a business must be right for it to succeed longer-term. Even so, there are inherent risks and challenges that will inhibit growth, profitability and sustainability. Innovation is an important key to being a competitive new business.

If your new business idea is potentially that special, you shouldn’t need to raise much money for it to prosper. Be patient, inject sweat, equity and grow the business from solid foundations investing time and effort to put them in place,

Fundamentals are things such as the business model, the business plan , the budgets, information technology infrastructure, the marketing collateral and so on. Putting in place the right company structure is a critical decision,

What level of detail do you propose to have in the business plan? Even though business plans do change, the detailed preparation shows a commitment and your ability to think before acting. Perhaps a simple ‘one-page- Business Plan’, is all you will need to get started. Do you have a budget that sets out your expectations in detail, or do you just gloss over the numbers saying it’s too early to do a budget?

In the future, should you need to scale the business with more capital, you will have options? You will raise considerably more capital if you are showing real profits and commercial substance as the basis of value. Never skimp on customer communications as it is your customers who will be the most important in helping scale your business.

Ensure the fundamentals are put in place as quickly as possible. Take at least one action on the important issues every day. You will be surprised how quickly things will come together if you do.

Understand what you are letting yourself into

Before you launch into your potential dream, ‘big idea, or opportunity, take the time to consider the rationale for it and take a few precautions. Remember the old saying, “A stitch in time saves nine”and don’t be afraid of change. You may end up losing something, but you will probably end up gaining what you want.

Research, test and get a ‘proof-of-concept’ to ensure your idea for a business is sound. Float it with potential customers for feedback. Genuine passion and genuine demand should march together.

What’s your history or track record for starting a business and what is your relevant experience? Without the experience, you need to seek advisors and coaches who have the practical experience with what you’re about to become involved in. Have you failed previously? If not, it maybe a warning you’re due for a fall. Anyone who has failed previously has the experience and hopefully has learned from it. Don’t hide behind mistakes in previous start-ups and businesses generally that you haven’t learnt from.

Is it a hobby or a real business?

Often startups are based on a hobby the person is passionate about. This is commendable, but passion isn’t enough on its own so make sure there’s market demand first. You need to have a product or service that people will want to come back to and buy more. If people like your product they will become advocates and help you with your marketing.

Focusing your attention on good customer service will be important to your success. Start by building your customer service into your competitive advantage, Put excitement and great ‘customer experiences’ into your new business. Being able to talk and arouse emotions is one thing, but what’s the substance driving real commercial value that will excite your customers?

Don’t let finance be your Achilles heel

How much cold hard cash do you have to invest in the business? Will it be enough to sustain you and the business during the start-up phase? Keep in mind that even a tiny profit demonstrates promise. Financiers are usually ‘risk adverse’ and never keen to fund a business making losses. If you need additional finance, what sacrifices are you making to demonstrate commitment and accountability?

Startups must be prepared to handle deceleration when they haven’t discovered product market fit, are running out of cash, or suffering from a poor economic environment. Understand how fast you can slow your growth to reach cash flow break-even and profitability, while still remaining in control of your business.

Some people find it hard to avoid selling ‘the farm’ too early.  If you’re the brains behind the business, take the time to find the right way to grow your start-up and be patient until the business starts to ‘fire-up’. Be careful of investors and others who put you under pressure to perform, during the critical start-up phase. Becoming too anxious to get results is a proven path to frustration and ruin for startups.

Will the business be scalable? This is critical if you want the business to match your aspirations of size and profits. Don’t start your business and demand a top salary from the outset, otherwise, you might bleed the business of the capital needed to reach a sustainable level of activity.

What are the risks to all parties and have they been identified? Do you understand your risk appetite?


Don’t let a lack of understanding finance screw up your startup.

Become more aware

Be aware that one of your biggest challenges will be managing relationships. Startups who put a strong team together (internal staff, and external advisors and suppliers) are more able to step away from the day-to-day business operations. This allows them to focus on more strategic issues as the business moves forward.

Are your family and those people involved fully committed, committed 100%? Not 50% now and the other 50% when the business looks like being successful. You need their full commitment now.

It will pay to focus your attention on your first customers and not take them for granted.

Do you have an exit strategy, if things don’t work out the way you wanted ?  Throwing more money into a “black hole” often results in a deeper and more disastrous situation. Startups are never guaranteed to be successful, particularly if you ignore the warning signs.

Be prepared to walk away from an opportunity if your ‘gut feeling’, or intuition doesn’t feel right. If it doesn’t work out there will be plenty of other opportunities and there is no shame in having given it your best efforts.

 Startups can fail for countless reasons

Some are just bad ideas that should never have seen the light of day. Most failures occur due to the lack of knowledge across the main functions of operating a business (planning, marketing, operations, finance, relationships, technology and management). Making use of business advisors can minimise the risks as it’s important to understand the limits of a startup business and the advisors help in providing objectivity and perspective will be invaluable.

The startups that survive and then prosper generally have a low-cost base that allows them to work while foundations are being formed, they learn the ropes and  know how to establish credibility quickly. They also understand how to market and sell their ideas and start-ups are built on genuine customer value, not shareholder returns, that comes later. Learning how to drive startups, is like learning to drive a car. You start off in first gear, then move through the gears as confidence and understanding dictates.

When startups take off and start growing very quickly, the people, the resources and the business will be put under stress. At some point, usually quicker than expected, the limiting factors to your growth will become apparent. The forecasts for start-ups aren’t all doom and gloom, boom and bust. In fact, startups and small businesses in general, are the engine room of most economies in the world. It’s an exciting time to be a business owner. Barriers to entry are low and you have more tools and opportunities at your disposal than ever before. Knowledge will unlock your potential,

Quotable quotes

“You’re not going to enjoy every minute of the journey, but the success you’ll find at the end will make it all worth it”.  Muhammad Ali

“The greatest mistake you can make in life is to continually be afraid you will make one”.  Elbert Hubbard

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