April 5, 2015
Competition among startups is becoming more intense as more and more companies, especially in the tech industry, keep cropping up. There are fears that this rapid increase in the number of startups may be a bubble in the making, similar to what happened in the dot-com era of the early 2000’s. Sustainability is being called into question.
In 2014, around $48.3 billion was invested into startup companies in the United States alone. Software and biotech companies received a big bulk of this amount. It’s an all-time high but there are apprehensions over this rapid growth. Some are describing this boom as having reached scary new heights,resulting in some pessimism over the success of startups that get funding.
While we don’t aim to dampen interest in tech startups, the goal here is to present ideas on how these companies – tech startups in particular – can become successful in the midst of ruthless competition and the quickly changing preferences of customers or new investors.
Why Startups Fail
There are many reasons why startups fail. A report on Fortune analyzed 101 failed startups and was found that new companies go haywire because there is “no market need” (42 percent). The rest of the reasons are as follows:
- Running out of cash (29 percent)
- Not the right team (23 percent)
- Getting beaten by the competition (19 percent)
- Pricing and cost issues (18 percent)
- Poor product (17 percent)
- Lacking a business model (17 percent)
- Poor marketing (14 percent)
- Disregarding customer feedback or inputs (14 percent)
- Wrong timing for product introduction (13 percent)
- Losing focus (13 percent)
- Lack of harmony or teamwork within the company or among investors (13 percent)
- Wrong pivot or shift in business strategy (10 percent)
- Lacking passion (9 percent)
- Bad business location (9 percent)
- Shortage of financing or investor interest (8 percent)
- Legal problems (8 percent)
- Not using business networks and advisors (8 percent)
- Failure to pivot or adopt a new business strategy (7 percent)
These reasons for failure provide ample hints as to how startups can avoid becoming a failure. Startups can study the failures of others, in order to anticipate potential challenges and come up with strategies that can address these early on. For tech startups, the key strategies are anchored in the following: 1) automation, 2) efficiency, and 3) scalability.
Automation is a multi-faceted strategy not limited to automating obviously repetitive processes, like in the case of manufacturing companies. It also covers the areas of marketing, recording, reporting, and even product testing and evaluation. Startups can use software tools that can facilitate marketing intelligence gathering and analysis, the automation of actual marketing efforts, and advanced workflow automation.
Of course, automation also makes it easier to accomplish tasks that follow certain identifiable patterns. In the tech industry, companies that can greatly benefit from automation include those that spend a great deal of manpower on data compilation, product testing, quality analysis, and evaluation. One good example of a tech company with this kind of setup is Infosys, one of India’s largest IT service companies.
In February, Infosys acquired tech startup Panaya. The US-based startup runs an enterprise automation platform that focuses on providing a means to conduct ERP testing for code fixes, scenario testing and upgrades for major ERP solutions that will assist in implementing ERP. According to Infosys representatives, the acquisition was aimed at integrating automation technology into a significant portion of the business processes Infosys does for clients. Infosys CEO Vishal Sikka, in an interview, said that acquiring Panaya was a key component in the strategy for renewing and differentiating the service lines of the company.
Efficiency efforts are aimed at cutting down costs, enabling more effective business communication, and improving the speed by which products or services are developed and delivered. It is about doing things better and faster without sacrificing the quality of outcomes.
A tech startup can observe efficiency by having a clear set of goals, both long-term and short-term ones. There’s a need to have a clear sense of direction, to know what ought to be done and how things should be done. Additionally, efficiency is achieved by adopting a clear-cut set of policies and standards. Business processes should be carefully thought out to do things in the shortest possible time, while yielding the best possible results. Moreover, it’s important to hire the right people. You cannot expect starup success with people who lack expertise or are resistant to new and better ideas. Even efficient systems fail when used by incompetent people.
In this sense, scalability can be compared or equated to being dynamic or adaptive. It is about being able to change to adapt to the situation. As mentioned earlier, one of the major reasons why startups fail is the failure to do a business pivot when the need arises. A startup that fails to change strategies or restructure itself to suit market conditions is very unlikely to succeed.
Scalability can be observed in a number of business aspects. It can be through the use of technology and resources like Cloud computing. In many cases, Cloud resources are preferable because of their cost effectiveness and scalability. Through Cloud solutions, there’s no need to invest in expensive equipment, software, and network or IT experts to handle the hardware and software. Cloud solutions also don’t require storage areas. Additionally, it’s easy to scale up or down with Cloud services to meet needs depending on how the business fares.
Again, scalability is synonymous to being dynamic, so it only makes sense that startup managers should learn how to think and act dynamically. It’s essential to be watchful of market conditions, threats, and opportunities to formulate and implement appropriate strategies and avoid losses or make the most of growth opportunities.
In conclusion, it is not enough to simply have a great product or idea for a startup to succeed. It is also important to integrate concepts that will ensure a sustainable path to growth, and this includes a fair amount of automation in order to boost scalability. A brilliant product or idea can still result in a failure or be snatched by competitor. Just look at what happened to Friendster (created in 2002) and Facebook (2004) or the case of many Japanese tech companies and their South Korean and Chinese counterparts.
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