How to Build a Winning Start-up When the Odds are Against You

by David Halperin,
General Partner & Co-Founder

Being an entrepreneur in a start-up that is trying to attract investors can be a tricky proposition. Even with a promising idea, many uncontrollable variables can erode chances of growth and ultimately lead to failure.

It is well-documented that nine out of ten start-ups fail and, ironically, the pattern, or reasons for failure, are consistent across industries and geographies. Many business experts usually remark that there is no such thing as a bad idea, just poor execution.

A rooted focus on creating a brand rather than a customer-focused product, lack of vision/clarity, premature scaling, and overbearing management are some of the primary reasons promising ideas or mature start-ups fizzle out within a decade of operations. So, what is the genesis of a start-up that goes from idea, to seed funding, to an IPO listing? 

The key characteristics of a successful start-up include some of the following attributes…

1. A Product that “Serves”

The primary aim of any start-up should be to build a product as desired by the target market. Yet the reality on the ground is often different. Sometimes founders are so emotionally attached to their original idea that any potential pivot is often overlooked, even after receiving critical comments from customers. The ability to adapt, improvise, and be agile in molding the core product can save founders from unnecessary heartache and cash burn. 

In simpler words, founders must think beyond a product that “sells” to a product that “serves.” This approach will lead to developing a quality product that the target market requires and will retain customers.

Key takeaway: Learn to pivot; listen to complaints.

2. Tunnel-like Vision

To be productive, it is critical to identify what is necessary and what is not, what is a priority and what is procrastination. By eliminating activities and processes that add little or no value to the product, it is possible to gain more of the existing bandwidth resources. Often, start-ups venture beyond their base offering, hoping to increase their appeal to investors, but end up suffering heavy losses in addition to causing a drop in their valuation.

There are only two things that should matter in a start-up phase: Customers and Product. All energies and resources must be directed toward developing a customer-centered core product while ensuring that further product development is at the forefront of customer satisfaction. Any expansion into a new service line should complement the current product rather than a new vertical.

Key takeaway: Set goals and identify customer-oriented KPIs.

3. Maintain Relationships

During the life cycle of a start-up, the founders meet with many parties: potential customers, investors, consultants, mentors, etc. These relationships need to be maintained and nurtured because they are a crucial source of valuable information or expertise.

However, founders often find it difficult to create equilibrium within their day-to-day schedules. Either they only pacify investors’ expectations or don’t see beyond customer uptake – both are not ideal long-term scenarios. 

For a start-up, the founders are vital in ensuring success by walking a tightrope in managing investors’ and customers’ expectations. Any successful professional or company will remark that there is always something to take from every conversation – information, feedback, or even compliment; hence, sustained engagement is vital for survival.

Key takeaway: Maintain and nurture all professional relationships.

4. Prudence Saves

While fundraising is a challenging task, a more arduous one is fiscal management. Many promising start-ups make costly decisions: non-viable product lines, high customer acquisition costs, expensive hires, etc. – all leading to relentless cash burn.

Ironically, as more funds become available for the disposition, fiscal prudence weakens as start-ups lack the processes and expertise to adjust their spending.

The maintenance of financial discipline is critical to continued growth, therefore, integrating a robust system of checks and balances ensures optimal use and availability of funds. 

Key takeaway: Know your numbers thoroughly.

Launching a start-up is a game of luck, filled with paradoxes. The chances of survival often diminish as the start-up matures due to various factors – some internal, some external.

However, as a founder, being pragmatic about what must be done versus what is done can save a start-up from premature death.

December 2021