You have read these figures in lots of places: around 90-95% of startups fail early on and that has been so for decades. Financing and management issues are often blamed; burning through cash too quickly, hiring the wrong people, etc. However, there are however some frequently overlooked factors why your tech startup won't just fail down the road, but may already be "dead on arrival."
At Geber Consulting we help established companies and startups alike to figure out how changing technology will affect their business. With startups, that process usually works like this: an enthusiastic founder approaches us and presents his or her unique idea. An idea in which they believe, of course, otherwise they wouldn't put their (or other people's) money where their mouth is.
In recent years, we have consulted for several startups who by the time they approached us had invested serious money in the development of their products, in one case more than 18 m USD. All of them were convinced that they had a unique value proposition and were the first and/or best new startup in the field.
Almost all of them were wrong. Developing your own product takes a lot of time, and very often not enough effort is spent on examining whether the brilliant idea is really what your customers want.
Specifically, startups tend to make the following mistakes:
1 Understanding technology, not needs
Too many startup founders are duly proud of their new inventions but fail to understand the needs of the marketplace. Is the same problem already solved in another way, by another app, or by a more established company? Is your approach too narrow? Are Google & Co. already working on the same thing? Is what you are offering already available for free through another channel? And most important of all: Do customers actually want that kind of technology? Just look at smart home devices: thousands of startups want to rewire your house for the Internet of Things, but how many of us actually want that?
2 Feeling unique
You think you're special? Think again. For one of our clients in the food industry, we found a staggering 167 competitors worldwide who were more or less doing the same thing in various stages. Yet when he came to us, the founder was convinced his idea as absolutely unique.
In fact, most startups are not aware of the competition, because competition comes in many guises. Disruptive technologies may come from any angle, under different names. Who'd have thought for example that blockchain, the technology underlying bitcoin, could have so many applications outside finance?
Sometimes all it takes is a day of intensive Internet search and you'll realize someone is way ahead of you. Ideally, patent research and scouring the websites of incubators and tech websites intensively should be part of your preparation. Yet surprisingly few founders bother with this pre-start due diligence.
3 The execution lag
Even if you are unique in your tech niche or market, you may be way too slow. One medical startup we encountered did indeed have a spectacular team and a promising product nobody else seemed to be working on. For good reason, we found out. The core technology of that startup will be entirely obsolete by early 2017, which is exactly the time they wanted to launch their otherwise excellent product.
Building a tech startup is not about what you can do today, but about what the competition will do tomorrow.
4 The platform myth
The most overused word in tech innovation must be the word platform. "We are coming out with one product now, but it will be a platform for many others." Will it? Not everything that looks like platform technology is one. Understanding the exact difference is crucial to tech startups. Being very good at one specific basic thing is not the same as having a "platform technology". When the paradigm shifts, the platform crumbles.
5 No marketing budget
Another of our clients came up with a fairly innovative e-commerce solution but spent the entire 1.5 m dollars they received from their angel investor on product development. By the time they had a working product, there was no more money left to effectively market it. It still lingers in the App Store today. Almost no startup ever makes adequate provisions for marketing, hoping instead for a new round of financing or a miracle of some sort.
Building a tech startup is not about what you can do today, but about what the competition will do tomorrow. To understand that, every startup should have a Chief Threat Officer - someone who constantly monitors possible threats to the new technology from all sides and helps improve the product and prevent it being immediately superseded by another startup.
Better yet, hire an outside tech consultant. It sounds self-serving, I know, but it is the truth. Tech consultants work with so many different companies in so many different industries that we often see threats coming from miles away. It costs money to hire a consultant, but doing that extra bit of due diligence and ringing that warning bell as early as possible can save your startup a lot of money. Perhaps even keep it alive.