How To Avoid The Most Common Risks That Startups Face - DO OK

How To Avoid The Most Common Risks That Startups Face

Did you know that only 1% of all startups turn into unicorns? Furthermore, it takes them on average six years to earn this status, and it’s often an arduous and challenging road. The secret behind their success lies in their ability to quickly alleviate their mistakes and ensure that the product they’re working on truly responds to customer needs.

 

In today’s article, we’re going to cover the seven common risks that startups face on their way to market success and we’ll show you how you can avoid following in their footsteps.

7 Most Common Risks That Startups Face 

 

#1. No product-market fit

34% of startups fail due to the lack of product-market fit. Successful startups build products that either solve existing problems or create new market needs. 

 

The lack of product-market fit is often caused by becoming fixated on a particular idea or product and not testing it with real users from your main target group. Many people that fail at this stage do so because they have a vested interest in an idea, rather than the success of the final product. This can result in product testing and market research being biased and not fully reflecting the needs of the end-users. 

 

Jeb Banner, CEO of Boardable, says that

product-market fit is that magical place where the solution you have created solves a critical problem for a majority of your target customers. And, this assumes there is a large enough market, to begin with

which accurately outlines what a business needs as a base level to be successful. You might have the perfect product to solve a “previously unsolvable” problem, but if only two people need that product your business will be short-lived. While at the design stage ask “can this product or idea be constantly evolving, or is this the final version?” if the idea or product is only static then it isn’t likely to enjoy long success as competitors evolve.

 

A great example of a company that has been maintaining its market-fit year over year due to their adaptability is Spotify. The business initially relied on a significant free account user base, and – very much like radio stations – generated revenue from advertisements playing between songs. However, when many brands pulled out their ads during the COVID-19 crisis, the company organized internal strategic workshops to find a new stable revenue source. Eventually, one of the pivots Spotify decided to invest in was offering and promoting more podcasts on their streaming service.

 

#2. Cash flow issues

As many as 82% of startups come across cash flow problems in their first years in business. This can be caused by mismanagement due to inexperience, or simply not having the funds to keep the business alive. Issues with funding and cash flow can disrupt operations, however, in the worst-case scenario, they can also be a fatal blow to the entire business.

 

There isn’t a “one-fix” solution for this challenge, as it may come down to the lack of the above-mentioned product-market fit or wrong project cost estimates, which we discuss in detail further below.

 

#3. Underestimating project implementation costs

Typically, we make this mistake when we become too complacent or naive. When an idea seems simple at first glance, we can mistakenly believe that the implementation will also be easy. For example, we might have an idea for a simple invention, but how expensive will it truly be to take the idea and turn it into a viable business product? How high are the labor costs? Do you need people with specialist skills, which will also require at least a 6-month run rate? 

 

A common rule to remember is, the simpler your idea seems, the easier it is to get the time-to-market estimates wrong. This can result in lowering your team morale and missing in the race against your competitors.

 

#4. No Minimum Viable Product (or an erroneously defined one)

According to Eric Ries, an MVP (Minimum Viable Product) is 

a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort”.

Having an MVP is valuable from a market research perspective, as it puts the concept of how you’re going to help, or solve a problem, to the same people you plan to target help. 

 

Having a Minimum Viable Product will give many valuable insights on how the idea or product could be implemented, how it might be used, what problems users might encounter, and how it might be evolved and opened up for further scaling.

 

As with anything in the planning stage, fresh product founders can focus on the wrong things, and sometimes waste too much time and money on things that aren’t important for the minimum viability. Things that would be considered enhancements or “cool” don’t contribute to the core problem solution. Remember, many of these add-ons can be introduced after focus-groups have validated the product, giving room for further growth and development.

 

Spending resources on this can be detrimental to business development as many extra features can confuse testers and initial users. And at startup workshops, you will easily find out the competitive advantage and set proper core features for MVP. 

 

#5. Investors can’t see the value of the product

Often a final “nail in the coffin” is when potential investors don’t see the value proposition. They don’t understand how your product could help people solve existing problems. Investors are frequently the lifeblood of new businesses as they can provide smart money to help move the business forward. It’s usually about the founder who falls in love with a product or idea and is inflexible with changes based on market research. This may cause investors to lose trust and the startup to miss out on opportunities to develop and provide something that could help people, and be profitable. 

 

#6. Wrong technological decisions

Sometimes there are multiple ways to address product development; other times there is only one. By choosing the wrong technology, the business will be set back and will need to play a game of catching up, costing valuable time and money to correct. 



Here’s what our VP of Engineering, Radek Kintzi, has to say about the consequences of wrong technological choices:

 

When you are a startup founder and about to start developing a new software product, what is the single most important thing to consider when it comes to the tech stack? Should you jump on a bandwagon of the new hot technologies you can read about all around the Internet? Or maybe you should bet on something that’s been around for a while and has already been tested in the ‘battlefield’? Should you, for instance, choose microservices as your architecture or keep wary of it?

 

As usual, there are no right or wrong answers to these questions and every situation is different. However, being a founder of a startup that failed myself, I think that it is not the tech stack that matters the most, but how effective we are in spending our hard-earned money. If I had to choose between betting on new functionalities that I could show to investors and possible customers, versus the best possible quality, scalability, and high availability from ‘day one’, I would choose the former. I’m not afraid to take reasonable technical debt into account, nor that I will have to pay back later when my startup succeeds, because, if it really does, I will have money to pay back the "interest". If not, I at least will have saved some money.

 

#7. Not having the right people on board 

Finding the right people can be one of the biggest hurdles that any business has to endure, even for established brands. Having someone who shares the same visions, ideas, and business ethics can occupy a lot of time in the recruitment phase. Even though once found, it might be extremely challenging to have a hard skill in place or appropriate industry experience. For that case, usually finding the right software development partner with several options to choose is a pragmatic solution. To help you with asking the right questions, we wrote a simple client handbook

 

How MVP workshops can help alleviate business risks

 

MVP workshops provide new startups with an invaluable opportunity to conduct research and minimize business risks. Participating in a Minimum Viable Product workshop organized by a professional software consultancy like DO OK gives you access to years of experience of software business analysts and product designers. We’ve delivered more than 150 projects in 10 years and are more than happy to offer you essential feedback on how your product or idea fits into the market and how you can maximize the potential for success.


Contact our business analyst now!

 

The team that operates our MVP workshops can give you honest and impartial advice about any issues you may be facing and help you get to the next level, be that further planning or product development. Rather than spending hours searching for information online or doing interviews with freelancers or doing interviews with freelancers, you can speak directly to people who can give you a concise list of what your MVP should include and what you should do to best present your product to investors and the market.

 

Summary

 

There are so many benefits to establishing your own startup: financial freedom, opportunity to create your own culture, or contributing to solving a painful problem. Sadly, success often comes down to luck or flexibility of a founder to adapt. Use this article as a guide map to understand the potential ways that you might not be successful. That’s the first step to having more control over all the difficulties that you might need to overcome. Reaching out to business coaches, software experts will certainly help; however, we strongly recommend joining an MVP workshop, as it will help to outline your product development roadmap for success.

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