What Does Kill Startups: An Exclusive Interview with Nelia KovbasaIn the last decade, startups have become one of the main business trends worldwide, showing the success stories of new companies that have managed to change the face of modern business. At the same time, every successful startup goes hand in hand with thousands of others which failed and often remained unnoticed.
According to the data provided by Startup Genome Report, 92% of young companies are closed due to the overestimation of their capabilities and exceeding staff. The remaining 8%, managed by a competent team, have a strong idea, profound financial support, use an effective business building model and provide a sound market assessment. However, if at least one element of such a working mechanism fails, the chances of the project to shoot can dramatically decrease to zero. As a result, only 2-3% of companies can eventually achieve their goals.
What does kill startups and how do start-up companies maneuver all the pitfalls while building a business that can bring millions?
FX Empire exclusively interviewed Nelia Kobvasa, the expert in the field of technical innovations, and the CEO of GTM + to find out what she thinks about the future of startups. Nelia has been working in the IT for 5 years, during that time she managed to gain quality experience in promoting, creating and managing startups and projects. She considers GTM + as the main project today, the company that provides IT outsourcing and outstaffing services for businesses that want to work with broad-minded people who understand customer problems.
Nelia, why do the majority of startups die?
NK: “In fact, there can be a lot of reasons – burnout, legal difficulties, misunderstandings among the team members. In 2016, researchers Lance Surety Bonds and Prestely came out with 20 main reasons causing young companies to fail, and today these findings are still relevant. The main problem areas are having no demand for the product, lack of funding, weak team and marketing, high competition, wrong pricing policy, no particular business model. The collection and processing of feedback from users is also of significant importance, as well as the timeliness of product release, concentration on the core idea, mutual understanding between founders and investors, team enthusiasm and readiness to restart if the initial idea turned out to be faulty”.
The founder of Start Co, Eric Matthews, is confident that entrepreneurs fail because they create a product no one needs. How to estimate the practical value of the project at the very initial state?
N.K.: “It is important to pay maximum attention to the preliminary business idea testing. Before the stage of product creation, talk to at least 50 potential customers, try out your idea. You need to make it asap to answer the main question of how anticipated the product could be. Just over a year ago, the founders of Barefoot Wine, Michael Haligan and Bonnie Harvey, conducted a survey among the representatives of international accelerators to find out the success factors and the reasons why startups fail. It turned out that more than 50% of projects are closed due to poor quality testing, which resulted in overall inability to operate, lack of marketing entry strategies, underestimation of possible obstacles and inability to create a strong desire to pay for the product from the side of consumers. ”
One of the most pressing issues for startups is getting investors. How can an entrepreneur attract funds to develop the project?
NK: “Finding investments is not the most difficult task for a team that has something to share with the world. Meet your potential investors as soon as you could to show them your ready MVP (Minimum Viable Product). This minimum viable product should be successfully tested with the reviews received from customers along with a justified strategy for entering the market, and the backbone of the team formed. These key conditions indicate the viability of the product and bring you big money in investments.
What you may say about the chosen niche potential? What companies attract investments easier and what spheres witness active financial support nowadays?
NK: “Undoubtedly, there are priorities in the investment world, where the current trends are shaped by the directions of development. Despite this, everyone has equal chances to become successful. Any project that offers a unique, sought-after idea and complements it with all the components necessary for its implementation can shoot. As for trends, according to the report by CB Insights, most of the venture capital investments in 2018 were aimed at supporting projects related to the Internet ($ 21.2 billion), mobile applications ($ 9 billion), and healthcare ($ 10.9 billion). Fintech industry financing has also significantly increased ($ 39.6 billion) – artificial intelligence, cybersecurity, digital medicine. ”
Is there a universal formula that will help a novice entrepreneur to build a business capable of reaching world recognition?
NK: “Unfortunately, many startup owners think that launching a project is more important than figuring out how to make it generate money. This is a mistake. You need to think about its financial side right away. I recommend using the Canvas method to create a business model. This is a working scheme that will help an entrepreneur literally in a few minutes to unscramble the business, view its strengths and weaknesses, and highlight the priorities.
The best way is to print a sign on a sheet of A1 format and fill it with colored stickers. Each segment of the table characterizes a separate component of the business structure that needs to be filled to the maximum with the key elements: for example, in the consumer column describe the potential client, and in the sales channels – all points of interaction with customers. When all sectors are filled, one quick glance at the scheme will be sufficient to analyze the current state of the business.
We, at GTM +, provide outsourcing services and also work with start-up companies. I recommend such clients to start with Canvas planning. It helps to develop a clear plan of action in each direction.
By dividing the corporate structure into segments, try to fill them with key components as much as possible – for example, characterize your potential buyer in the consumer’s column and describe absolutely all contact points with customers in the sales channels. Сompile key values, resources, partners and activity sectors, determine revenue flows and cost structure in a similar manner. This is the way to determine the logic of building relationships between the main elements of the business, while a fleeting glance at the diagram will be enough to analyze its current state.”