| By Aashish Pahwain Business Guides|Reader DisclosureOur content is reader-supported. This means we may earn a commission if you click on some of our links.
Imagine this: You’re standing at the intersection of two roads—one leading you towards continuing a well-established business model and the other towards an unknown business territory with high risks and opportunities.
One leads to a stable income (as it can be a franchise), while the other could have two possibilities— hockey stick growth or a complete disaster.
Starting a startup isn’t as they show in those TV series or movies. It is a long, tiresome and risky road. You don’t always have employees or bosses to blame. You’re on your own with a startup.
Hence, every startup tip matters, especially when it comes to researched case studies. So here are five business tips for startups that are practical, realistic and could help you to make the journey towards entrepreneurship a little less daunting.
Product market fit refers to the alignment of your offering with the needs and preferences of your target market. It calculates the fit of the product with the current and expected demand.
In simple terms, it showcases whether there’s a demand for your product or not. For example, if you come up with a non-fragrance soap in a market heavily driven by perfumed soaps, you might not have a strong product-market fit, and your product might not sell well.
Failure story of a startup that didn’t find the product-market fit
Juicero is one such startup that failed to understand what its users wanted. It launched a $700 juicer that squeezed out juices from pre-packaged fruits and vegetables. Moreover, the positioning focused on a high-tech, WiFi-connected juicer, while what the customer really wanted was an easy way to make fresh juice at home.
The company failed to read the market demand for –
Juice enthusiasts preferring to use their own fresh produce instead of relying on pre-packaged ones.
A more affordable juicer that didn’t require WiFi connectivity or other unnecessary features.
As a result, the company had to shut down within four years of its launch despite raising $120 million.
Success story of a startup that fond the product-market fit
Airbnb is a perfect example of a startup that found its product-market fit and went on to become a successful business.
The company didn’t come up with a finished high-tech product with all the features. Instead, it launched an MVP (Minimum Viable Product) – where Airbnb’s founders, Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, initially rented out air mattresses during conferences. This initial idea gave the founders confidence to explore the market demand further, which was recognised by two key market needs –
By connecting these two groups, Airbnb created a win-win situation that addressed a gap in the market.
How To Come Up With The Product Market Fit?
Finding a product-market fit is the startup foundation that can make or break your startup. Here’s a detailed 5-step process to help you come up with product-market fit:
Determine Your Target Customer
If you can’t define the persona of the customer who will actually buy your product, you are already in trouble. It’s not about your preference but the customers’ expectations.
Create detailed personas to describe your target audience
Understand their behaviours, motivations, and pain points
Start with the information you have and refine it as you progress
Know that it’s your customer who decides the product-market fit, not you.
Identify Underserved Customer Needs
An underserved need refers to a problem that is not fully addressed by existing solutions in the market. It could be an unmet need or something that can be improved upon from existing solutions.
Engage in one-on-one conversations with potential customers
Use surveys and interviews to gather insights
Analyse existing solutions in the market and their shortcomings
Look for patterns in customer feedback to identify common pain points
The goal is to uncover needs not adequately addressed by current solutions. By doing so, you can develop a unique selling proposition (USP) for your product. This will help differentiate your offering from others and increase its appeal to potential customers.
Define Your Value Proposition
A value proposition is a statement that conveys the unique value your product offers to customers. It is the benefit or outcome that customers can expect from using your product. Your value proposition should be simple, clear, and concise.
To define your value proposition:
Articulate how your product will meet customer needs better than alternatives
Highlight the unique features and benefits of your solution
Create a clear and concise value proposition statement
Ensure your product addresses key pain points
Your value proposition should align with the needs and preferences of your target audience to ensure a strong product-market fit.
Specify Your Minimum Viable Product (MVP)
An MVP is the most basic version of your product that contains only the core features and capabilities. It enables you to quickly launch your product and gather feedback from early adopters, helping you refine your offering based on real customer insights.
To define your MVP:
Identify the core features necessary to address the target customer needs
Prioritise features based on their importance in meeting customer needs
Keep it simple and minimalistic – avoid adding unnecessary or complex features
Launching an MVP allows you to validate your product idea and make any necessary adjustments before investing significant resources into developing a full-fledged product.
Test Your Product-Market Fit
The final step is to test your product-market fit by launching your MVP and gathering customer feedback. This includes tracking customer acquisition, retention rates, and revenue metrics.
The results of these tests can help you determine whether your product effectively meets the needs of your target market. If not, it’s important to make adjustments or even pivot before fully launching into the market.
Maintain Financial Discipline
While this seems like a basic principle, about 38% of startups fail due to financial problems.
Financial discipline doesn’t mean being overly frugal or cutting corners on essential expenses. It means managing your finances efficiently and effectively to ensure the long-term sustainability of your business.
It incorporates the following principles –
Efficient cash flow management
Cash flow is the lifeblood of any business. Many startups are efficient with their products and marketing but struggle to manage their cash flow effectively. This includes –
Poor cash flow management: Failing to track and manage incoming and outgoing funds properly.
Inadequate budgeting: Not allocating resources effectively or underestimating expenses.
Overly optimistic projections: Setting unrealistic financial goals and failing to prepare for worst-case scenarios.
One of the best ways to maintain efficient cash flow management is to create a detailed financial plan and regularly review it. This will help you anticipate potential challenges and make necessary adjustments to ensure the smooth running of your business.
Sufficient Funding
While not entirely in your hands, it can still collapse if the startup gets past its runway without getting the right funding. In fact, 29% of startups fail because they run out of money.
While getting the funds is a 50-50 partnership between your hard work and luck, there are a few things you can do to increase your chances of securing funding –
Have sufficient initial capital: Having some capital to start with can help you get off the ground and make your business more attractive to potential investors. FFF (friends, family, and fools) are common initial funding sources.
Start looking for investors at least 6-9 months before you expect to run out of funds. This will give you enough time to pitch to different investors and secure the necessary funding.
Use good financial management software: This will help you track and manage your finances effectively, making your business more appealing to potential investors. For example, software like QuickBooks, FreshBooks, or Xero or any one of the best financial statement software with can help you –
Create financial reports and projections
Manage cash flow
Track expenses and income
Generate invoices and manage payments
Failure story of a startup that didn’t Maintain Financial Discipline
WeWork, once hailed as a revolutionary coworking space company, experienced a major downfall due to poor financial management.
The company’s inefficient business model didn’t stop it from aggressive expansion and cash burn.
It pursued rapid expansion at the expense of profitability. WeWork spent enormous amounts of money leasing and renovating office spaces, often in prime real estate locations. This aggressive growth strategy led to the following:
High debt levels ($24.6 billion in total liabilities by mid-2019)
Substantial lease obligations ($50 billion in lease commitments)
This, combined with overvaluation and failed IPO, the impact of COVID-19, mismanagement and governance issues, led to its eventual downfall.
Success story of a startup that Maintained Financial Discipline
Dropbox, a file hosting and cloud storage company, is an example of a startup that successfully maintained financial discipline. Despite facing fierce competition from tech giants like Google and Microsoft, Dropbox managed to achieve profitability within two years of its launch.
The key factors contributing to their success were efficient cash flow management and sufficient funding:
Efficient cash flow management: Dropbox kept their expenses low by using scalable infrastructure and focusing on product development rather than expensive marketing campaigns. Instead, it focused on viral referral program and word-of-mouth marketing to acquire customers.
Efficient Operations: As Dropbox matured, it focused on operational efficiency. The company now boasts impressive operating margins of 33%, demonstrating its ability to generate significant profits from its revenue.
Be Prepared to Pivot
Pivoting is a fact of startup life. If something’s not working, you need to pivot quickly before it’s too late.
However, pivoting is a double-edged sword that requires careful consideration. On one hand, if done correctly, it can lead to success and growth. On the other hand, if not executed properly, it can result in failure.
You need to pivot to:
Achieve the product market fit: There’s only a 1/3rd chance of a startup succeeding in its first attempt. According to Forbes, startups that pivot once or twice are more likely to be successful than those that pivot more than twice or not at all. They are more likely to:
Raise 2.5x more money,
have 3.6x better user growth, and
And are 52% less likely to scale prematurely
Adapt to changing market conditions: Pivoting can help you stay relevant and competitive in a rapidly evolving market. This was demonstrated by Airbnb, which started as an online platform for renting air mattresses but later pivoted to become the world’s largest accommodation provider.
Maximise resources: Pivoting can also help you utilise your existing resources effectively. For example, Instagram initially started as Burbn, a location-based check-in app, but after realising its potential for photo-sharing, it successfully pivoted and became one of the most popular social media platforms.
Failure story of a startup that didn’t pivot
Blockbuster and Netflix were both in the business of renting DVDs, but only one of them survived. Blockbuster failed to pivot despite changes in the market and customer preferences. While Netflix embraced online streaming, Blockbuster stuck to its traditional brick-and-mortar model, leading to its eventual downfall.
The company failed due to –
Resistance to Change: It was a clear indication that streaming was the future of movie rental industry, but Blockbuster failed to acknowledge and adapt to it.
Lack of innovation: While Netflix focused on developing technology and improving user experience, Blockbuster stuck to its outdated business model without making any significant changes.
Poor financial management: Blockbuster’s heavy reliance on late fees for profits led to customer dissatisfaction and a decline in revenue, putting the company in a vulnerable position when faced with competition from Netflix.
Success story of a startup that successfully pivoted
PayPal is an example of a successful pivot. Initially launched as Confinity, the company offered PDA-based software security tools for handheld devices. However, after realising their product wasn’t gaining much traction, the company pivoted to focus on online payment services. This pivot led to immense success and eventually resulted in PayPal’s acquisition by eBay for $1.5 billion.
PayPal’s successful pivot can be attributed to:
Early recognition of market trends: The company realised the potential of online payments and acted quickly to capitalise on it.
Strong leadership: PayPal was led by an innovative and adaptable CEO, who recognised the need for change and made bold decisions to pivot towards a more profitable business model.
Utilising existing resources: PayPal leveraged its existing technology and expertise in secure transactions to enter the online payment space, giving them a competitive advantage over new players.
Don’t Expand Too Quickly
Premature expansion is as good as financial suicide for startups.
It refers to scaling up or entering new markets before your product is ready, or you have enough resources to sustain growth. Some common reasons for premature expansion are:
Fear of missing out (FOMO): Seeing competitors expanding rapidly can create a sense of urgency and fear of losing out, leading startups to expand prematurely without proper planning.
Pressure from investors: Investors may push startups to expand quickly in hopes of high returns, even if it means taking on excessive debt or sacrificing long-term sustainability.
Ego and overconfidence: Founders may get caught up in the hype surrounding their startup’s success and believe they can conquer any market without fully understanding its dynamics.
Misjudged market potential: Startups may overestimate the demand for their product and enter new markets before fully testing it, leading to a waste of resources and potential failure.
The consequences of premature expansion can be severe:
Financial instability: Expanding too quickly without proper planning can drain your financial reserves and increase debt, putting your startup at risk of bankruptcy.
Poor execution: Rapid expansion often leads to a lack of focus and poor execution, resulting in customer dissatisfaction and negative brand reputation.
Inability to sustain growth: Premature expansion can exhaust resources quickly, making it difficult for startups to maintain or sustain their initial growth rate.
Failure story of a startup that went for premature scaling
Webvan was a promising startup in the late 90s, offering online grocery delivery services. The company raised over $800 million and expanded rapidly, thinking it would revolutionise the grocery industry. However, due to poor execution and premature expansion, Webvan failed to turn a profit and eventually filed for bankruptcy.
The primary reasons behind its failure were:
Overambitious expansion: In just a few years, Webvan had expanded to 26 cities across the US without establishing a solid presence in any of them.
Lack of market validation: Webvan failed to consistently evaluate data and pay attention to signs that their business model was unsustainable.
Pressure to scale quickly: The company followed the ‘Get Big Fast’ (GBF) business model prevalent during the dotcom era, which led to hasty decision-making
Insufficient infrastructure: The company’s infrastructure was not capable of handling the high volume of orders, leading to delays and customer dissatisfaction.
Poor financial management: Webvan spent heavily on marketing and building distribution centers, resulting in huge losses and an unsustainable business model.
Success story of a startup that didn’t scaled prematurely
Zappos, an online shoe retailer, started small with one product and focused on perfecting its business model before expanding to other categories. The company’s slow and steady growth approach paid off when Amazon acquired it for over $1 billion.
Zappos’ success can be attributed to:
Long-term vision: Zappos prioritised long-term success over short-term gains. Tony Hsieh, the CEO, passed on short-term opportunities that didn’t align with the company’s vision.
Customer-centric approach: The company focused on providing exceptional customer service and building strong customer relationships, resulting in high customer loyalty and word-of-mouth advertising.
Incremental growth: Zappos gradually expanded its product offerings and entered new markets as it gained a solid foothold in the online shoe market, ensuring sustainable growth.
Strong core values: Zappos prioritised its core values, such as transparency, trust, and empowerment of employees, which helped build a strong culture and brand reputation. Overall, Zappos’ patient approach to scaling allowed them to establish a strong foundation for success.
Technological innovation: The company invested in advanced supply chain management and real-time inventory systems, achieving 99% accuracy compared to as low as 40% in other retail areas.
A startup consultant, digital marketer, traveller, and philomath. Aashish has worked with over 20 startups and successfully helped them ideate, raise money, and succeed. When not working, he can be found hiking, camping, and stargazing.
I'm on a mission to create an AI Enthusiasts community on platforms where people already are (we're starting with WhatsApp).
But, it's an invite only community.
So, drop your details and look for the invite in your email.
