Too many entrepreneurs look for that one magic bullet -- an exciting new technology, perhaps, or their own determination to make the world a better place -- to override any shortcomings in their startup model. Yet, magic bullets are not sufficient to assure business success. If the elements of your business aren't expertly developed and aligned, even the best dream will be in jeopardy.
Common failures I see along these lines include: solutions that are "nice to have" but don't address painful problems; a business model that lacks a means for bringing in revenue; and a founder who has turned a blind eye toward his or her competitors.
Such failures ignore the essential business elements investors look for before committing to a startup. Here is my list of those elements, which every entrepreneur needs to develop before charging into the marketplace with high hopes and (sadly) a business that will likely get lost in the throng.
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An experienced and skilled team on board. Even the best solution won’t rise above the crowd unless it is driven by an equally outstanding team. In fact, most investors will assert that the team is more important than the solution in startup success. They look for a balanced mix of people with complementary skills, experience and determination.
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A large and growing market opportunity. Investors look for startups which can address large markets, meaning those larger than a billion dollars and growing at double-digit rates. Small markets tend to change more rapidly with the economy, and may be more easily influenced by fads and competitors with recognized brand names.
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A focus on a specific market segment. As a startup founder, you won’t have the marketing resources or brand recognition to appeal to all consumers. Instead, find and quantify the specific demographics of the subset that your solution best fits, and target all your features and messaging to those customers. Targeting multiple segments almost always weakens your business.
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A near-term customer value proposition. Customers buy solutions with value that's quantifiable to them today, meaning value which, compared to existing offerings, is half the cost or offers twice the productivity. Long-term value propositions to society, or paradigm shifts in technology, generate interest but don’t close sales in the time frame your startup needs to survive and prosper.
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Sustainable competitive advantage. Every solution has competitors and alternatives, or it has no market. Thus, it needs an advantage to rise above the crowd, such as a patent and trademarks, unique market positioning or support from industry partners. Too many competitors or a product with minimal differentiation makes a startup risky.
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Solution production and support. If your product is hardware, you need manufacturing, quality control and inventory. In all cases, you need customer support, formal processes and training in place. As an entrepreneur, make sure you understand your direct and indirect costs, staffing requirements, margins and metrics to make sure these elements are in place.
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Product distribution or service delivery. Physical products often require access to existing distribution channels. Website and smartphone solutions usually require referral partners and value-added resellers. If your scope is international, country-specific adaptations and translation are likely required. Smart startups have these in place early.
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Validated pricing and a sufficient revenue stream. Pricing needs to be set before rollout, based on the value delivered and the competition; pricing also needs to be tested with real customers. Free products may sound attractive, but every business requires at least one revenue stream to survive. An understanding of return-on-investment potential is critical to all founders and investors.
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An innovative marketing plan. Word-of-mouth marketing is usually just an excuse for no marketing and no money to spend. In the real world, marketing initiatives that go viral cost big money and effort for their innovation and execution. Investors look for specifics on sales channels, marketing collateral, social media initiatives and customer incentives.
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An understanding of cash-flow requirements. Many startups fail due to too much success too early, without the cash or investors to cover subsequent costs for manufacturing, inventory and receivables. Make sure your financial projections quantify the timing and amounts of cash infusions from investors. This will lead to investor-return calculations and exit strategies.
No single magic bullet can offset all these critical elements in any business. As an entrepreneur, you have the responsibility to build and execute a solid plan to turn your dream into a reality. In my view, if you adequately address the ten items outlined above, your startup will rise above those of at least 90 percent of your competitors. There is no better way to improve the odds for long-term success.
