Work Smart: 8 Key Metrics To Avoid Startup Failure
Till the year 2010 public transport in Gurgaon was almost non-existent. In that year one service changed the face of local transport. A radio auto service was set up which provided the last mile connectivity upto the doorstep of residents. Innovative as its sounds, radio autos were given the thumbs up by Gurgaon’s denizens. There was such a huge demand that its helpline was jammed and booking had to be done in advance. The autos were new, painted red, metered and the fare structure reasonable. The timings matched with that of Delhi Metro and the services were complimentary to each other. Such was its success that 2 other service providers also started radio auto services. All seemed to be going very well and the owners were also planning expansion of their respective fleet.
However, in just over 2 years this start-up shut shop. The other 2 services providers also faded out shortly thereafter. It is a mystery to many regular commuters who were very satisfied with the services. The sheer comfort of autos on call was not only a novelty but also a much desirable mode of public transport. What went wrong with this wonderful work? No start-up would like to meet with such abrupt failure. Let us take a look at the following factors which are critical for all start-ups:
Start-ups commence business with a big bang (read own funds). The expectation is obviously to obtain a return on investment in due course. However, most start-ups face a cash crunch situation within the first year of their existence. Failure to estimate margins or inability to cope with initial failure leads to improper planning of further funding options. This is more common in capital intensive business such as airlines. Post the liberalization of Indian economy in 1991, the national carrier had its first taste of competition, when an array of airlines entered the domestic fray with flamboyant starts. However, apart from a couple of them, none survived despite enjoying stupendous response from the flying fraternity. On the other hand some start-ups like Flipkart & Zomato have been enormously successful in attracting private equity and foreign capital due to proper planning and cautious management.
We all know what happens when quality is compromised. Once the image of a product or service is tarnished on account of unsatisfactory or poor quality, the product or service loses its credibility in the market. Hence it is most important that quality is treated as a very important factor. Quality control checks should be undertaken regularly. If feasible, then a testing mechanism needs to be adhered to. The standards promised should be delivered. The meters of a new radio taxi service provider, that had promised cheap fares, turned out to be faulty on a regular basis and eventually the start-up lost faith of its customers and sales steadily dwindled.
Every day we see a new leaflet announcing the launch of a new restaurant. However, very few of them actually survive. One of the factors attributed to their failure is the lack of innovation. One may argue that a successful menu or product needs to be consistent in order to maintain its popularity or difficulty in preparing a different Hakka noodles or Chicken Tikka Masala. The life of a product is like a curve and at some point of time its growth will surely slide. Hence, innovation is a must – maybe reinventing the product or simply changing its look or some features may be more appealing in the eyes of the same customer. In today’s times, when it is so easy to be emulated (or more crudely, copied), innovation in product, pricing, packaging, delivery etc. becomes a useful tool in long term survival. Dr. Spencer Johnson, in his best-seller ‘Who Moved My Cheese’ highlights the importance of a products lifecycle, when he states ‘Smell the cheese often so you know when it is getting old’.
It is an accepted fact that nowadays consumers make a very conscious choice. Hence, it is imperative that one is able to reach out to desired consumers. Traditionally, advertisements can be given through various means such as newspaper, television, trade journals, billboards, pamphlets etc. Today, presence on social media can substantially raise the visibility quotient. Another way to target consumers is to advertise on specific occasions such as festivals, popular events or commencement of a season. General advertisements surely help in creating awareness. Indigo Airlines used this route very effectively and its ‘On Time’ campaign (matched with actual delivery of promised timely services) proved to highly successful. However, it is important to connect with the right consumer. A person owning a luxury car may never use a radio auto! Similarly advertising on television by an auto parts OEM may not be relevant in comparison to advertising in an auto related journal or magazine!
Start-ups need to be dynamic in their approach. They must be able to adjust to the ever changing market conditions. In the event of a lean season, offering freebies, gift coupons etc. can help keep margins. Likewise when there is an upswing, it may be a good idea to invest the money in diversification or paying back loans. At times, it may be a good idea to pass on the benefit to consumers through carefully designed loyalty or payback schemes. Some start-up retailers have devised schemes to offer discounts, cash backs, loyalty cards, co-branded credit cards etc. which give the customer the dual benefit of instant savings and conversion of loyalty points for redemption at the same retailer!
Start-ups need to ensure compliance with all applicable laws, rules and regulations. All licenses required to commence business or continue operations need to be obtained as mandated under law. Further, invoices need to be raised properly and taxes need to be correctly charged to the customers. Filing of returns under various tax provisions need to be strictly adhered to. Start-ups should also ensure that they do not infringe intellectual property rights (trademarks, patents, copyrights, designs etc.) of other parties. There can be severe consequences of violation of law including sealing of premises, seizing of products and, in the worst scenario, closure of business. Not to mention costly litigation, hefty fines and unending proceedings before various authorities, that comes with such non-compliance.
This is a very important factor in a start-up’s growth. ‘Consumer is king (or queen)’ and consumer’s wishes and desires definitely need to be factored in. Obtaining feedback, timely and continuously, will indicate to the start-up as to how it is faring in the market and identifying areas of improvement. Having a dedicated contact number or email address is a common way of soliciting feedback. What is more important is that communication from customers is read, understood and effectively used to make suitable internal changes. Further it must be ensured that all complaints are adequately redressed and customers should feel cared for. The author came across a rather unique & cost effective feedback process - a small local takeaway restaurant was introducing some new items on its menu and to gauge the market response, supplied a small quantity of one new dish along with the order; it followed up with the customer a day later to hear the response!
Start-ups are being established on a daily basis. At times they are a break-away from larger organisations. Hence there is plenty of competition which a start-up needs to be wary of. In order to sustain in the long run there can be 2 factors for a start-up’s sustainability vis-à-vis competition – either it beats the competitors or the market expands to accommodate more players. In the above example of radio autos, one of the factors which perhaps worked against them was the sudden spurt in normal (yellow green) auto rickshaws in Gurgaon. The abundant availability of autos reduced the requirement of radio autos and turned them redundant. Obviously, the homework on the competition front was missing, which cost them dearly.
The above are some factors which should be considered by all entrepreneurs. There may be many more specific factors applicable to start-ups depending upon the industry and nature of business. However, keeping a close watch on the above factors will be useful parameters for any start-up. Further, after commencing operation, a regular reality check on the relevant market conditions and general business environment will augment the existing business model of a start-up. Some start-ups have imbibed global best practices for their respective industry, thereby injecting ideas and processes which are time tested and have fetched favourable outputs.