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Starter Company? 5 Common Reasons for Failure & How to Tackle Them

Brad Feld, investor at the Foundry Group, has predicted that we are at the brink of a start-up revolution in Canada. However, having a path-breaking idea and putting it into action are two drastically different things. While a starter company is poised to fail 90% of the time, there’s a 10% chance of success. What makes for a winning enterprise? And, what failures can we avoid? Here is our two pence.

starter companies

  1. Financial Crunch

The reason many businesses go bust within the first few quarters is poor financial planning. The best way to tackle this is to spread funds across your expenses, while making room for capitalization. To minimize costs, consider invoice factoring, a method to collect receivable accounts immediately. This will help source the required credit to keep the business going. Investing in smart accounting software, such as Kashoo or Freshbooks will come in handy. Costs can also be kept low by the frugal use of resources. Consider workspace sharing or virtual networking over extravagant offices or fancy dinners.

starter company

  1. A Foolhardy Business Plan

Before investing a number of man-hours into building a business, take a minute to review your revenue model.  The Times of Startups advises entrepreneurs to choose a business model that can generate profit fairly quickly. For example, a transaction-based revenue model works well for businesses making products en masse; customers pay for what they receive. A subscription-based model works well for services that are unfurled over time. As a starter company, select a model that suites the temperament of your target audience, while also catering to the financial needs of your business and delivery of your product/ service.

  1. Questionable or No Marketing Strategy

“If you can’t explain it simply, you don’t understand it well enough” – Albert Einstein. When devising a marketing strategy, ask yourself these questions: are you able to explain your product/ service to target consumers in simple terms? Are you showing them how they can benefit from your selling proposition and how it address their pain points? Are you able to speak to your audience where they prefer to listen? A sound marketing strategy can take your business places. For instance, Apple sells cutting-edge user experience, not cellphones.

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  1. Team Dynamics

Treat your employees well and they will treat your customers well is the longstanding adage. By putting together a stellar team to support your vision, you have fought half the battle in making your starter company a success. Invest in building a team culture of collaboration, dedication and commitment. Continue to train, engage and educate your employees.

  1. Competition

Does your business operate in a hyper-competitive domain? Many enterprises shrink in comparison to their competitors as they don’t have a clear vision/ mission or game plan. Play the devil’s advocate in identifying loopholes in your selling proposition. Unearth the pain points of your competitor’s offerings and take advantage of these pitfalls to set your starter company apart.

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