With increasing number of small players in the same domain, market giants getting diverse, customer getting more analytical, the competition to survive in the market is getting increased day by day. New and Young entrepreneurs with limited patience, knowledge base and strategies, struggle for long run survival of their venture. Success probability of startup is 1/10 i.e. 9 out of 10 startups fail. Survey shows that only 1% of startups get funds based on their distinguished business model, potential team and sustainability limits, around 80% of the running startups are self-funded and around 19% of the running startups are dependent of the angel investors, friends and relatives.
“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”- Colin Powell
So the question is what major areas are on which entrepreneurs should focus to reduce the chances of failure of their startup. FS comprehended a small guide book for startup containing the major parameters to ensure the survival in long run.
Assumption for Case Study
Let’s assume a business model that has already proved its acceptance by mass and has some revenue model. So let’s consider hyper local delivery for our case study of “Startup Sustainability”-
- Startup has tied up with nearby local grocery stores to get the good while order being placed
- Startup has developed its supply chain ie delivery fleet to manager the show on time (say 2-3 hours per delivery)
- Only source of earning is by the commission earned through delivery per order.
- Market competition exists ie other players are also working in same domain to capture the same potential market.
[A] Startup Business Model Sustainability
Business model is the core of startup success, so here are few tips from FS to make business model sustainable –
Enhance Reach of the Product / Service – First step towards achieving sustainability is by enhancing the depth in the operating location and then the width in other geographical locations.
Since the cost of new customer acquisition is very less in already established location, as the additional cost getting introduced in the picture is only running cost rather than the fixed cost combined with operational cost at a new identified location, startups should focus to capture all the potential market based on market size estimation.
Enhanced reach of startup in consumers helps in building the brand name for consumers. Also, more business at limited expenditure helps in enhancing the cash flow of business model. Recently, Peppertap shut down operations in six cities including Mumbai, Kolkata and Chennai to deepen their roots in the limited cities like Delhi, Noida, Pune, Hyderabad, Ghaziabad, Gurgaon, Bengaluru rather than expansion in different geographical locations.
Introduction of New Business Verticals – Once the brand name start getting recognition with consumers, its better to introduce the related business verticals and services in the existing model to make it a one stop solution.
Since consumers always need the related product or services, grabbing them for the same is good to make a simple business model more diverse and getting more profit. Business model with limited verticals has the probability of shorted life span till bigger players get diverse.
Change Business Model as per Market Competition and Need – Business model needs to be change as per the demand of consumers and market competitors’ strategies.
If switching cost is low, consumers always try to pick the best option available in the market. So it’s not a good idea to lose the loyal market base just because consumer is demanding something additional or competitor is offering something more.
Altering business model as per the need of time helps in building the loyal consumer base along with the survival in competitive and demanding market.
Case Study – For the considered case study of hyper local delivery, following are the few tactics for business model sustainability –
- Deepening the roots of startup in existing location by acquiring new consumers and making customers of other players believe to get switched.
- Broadening the limited boundaries by operating in other markets as well.
- Adding other consumer services like on-demand laundry service, pickup and drop service for goods/courier etc.
- Running the surveys to understand the consumer needs and altering the business model as per need.
- Adding services as introduced by competitors (say other player is offering monthly order management system, so adding the same in business model.)
[B] Startup Financial Sustainability
Funds are always required to run and manage the business, so here are few tips from FS to achieve long term financial sustainability –
Operational Excellence to Optimize Running Cost – Fixed cost can’t be altered much, so operational or running cost is the area of improvement to optimize the cash out flow.
Since the running cost is the cash loosing slowly but in huge amount, attacking the same would help in achieving financial sustainability. Breaking the operations up to its lowest unit of work, rearranging the work to optimize the process and then assigning the reasonable cost helps in increasing productivity and controlling cash out flow.
Additional Ways to Make Money – Limitation of market size, fluctuations of consumer behavior etc are some of the factors that put uncertainty in any of the business model. So its always a better idea to deploy additional ways of making money with the existing setup itself.
Additional ways of revenue sources not only helps in sustaining the financial condition but also in developing the business model. For eg – Delhi Metro is utilizing the unused space of metro body by making it available for advertisement.
Case Study – For the considered case study of hyper local delivery, following are the few tactics to achieve financial sustainability –
- Clubbing the order delivery to reduce running cost per order delivery.
- Adding advertisement space on packaging, vehicle etc to generate additional revenue.
[C] Startup Management Sustainability
Entrepreneurs with limited patience, knowledge base and strategies generally face management failure in short run itself. So here are few guidelines to achieve management sustainability –
Plan Before Execution – Planning on each vertical before execution is necessary to avoid any sudden failure in future. When things are moved without any plan, probability of failure increases.
What needs to be done? How much cost should be assigned? What should be the timeframe for work? What should be the communication flow? What are the risk associated and its mitigation plan? What are potential opportunities and can be enhanced? What resources need to be purchased or developed in house?
Benefit of pre-planning is that it gives proper indication of success level with progression of execution and suitable majors can be taken if any deviation is observed.
[D] Other Important Factors
Others factors that needs to be taken care for startup sustainability are as follow-
Alter Business Setup to Increase Consumer Frequency – Business setup shall be redesigned to increase the frequency of consumers. Based on the type of product or service, the setup should be designed so that consumers are forced to return.
If the frequency of product consumption is high, consumer should be lured with the use of same player for existing products itself. If the consumption frequency is less, consumer should be lured with the related service, products etc. For eg – Cash-back of Paytm and Freecharge is a good strategy to ensure the consumer will return for next purchase.
Enhanced frequency of consumer helps in gaining financial sustainability as well.
Manage Relationship with Consumers – Consumer is King. So the relationship with existing as well as new customers should be developed and managed in healthy way.
A happy consumer brings more consumers with him while frustrated consumer takes way potential consumers with him. New consumers who are either unaware of the concept or attached with other players shall be convinced to use the product while existing customers shall be convinced not to switch to any other player.
Customer satisfaction level is also a check meter of the operational excellence that startup has achieved till date. A single unhappy complaint is sufficient enough to show the quality of operational excellence of startup. Feedback of consumers is the greatest sources to find the loopholes and areas of improvement in the system.
Avoid Legal Issues – Legal issues not only affect the short term business plan but also affect the long term reputation in the market.
So all the rule and regulations shall be carefully understood and implemented in the setup.
Case Study – For the considered case study of hyper local delivery, following are the few tactics –
- Incorporating daily, weekly, monthly order management system, to ensure the frequency of consumers.
- Reaching out most of the targeted consumers by targeted marketing.
- Including easy return and exchange, refund policies to win consumer trust.
- Abiding by all the legal terms related to business model.
FS Outlook – No fool proof plan can be developed to ensure the success. There are thousands of factors that may lead towards startup failure. But it’s always better to move with right plan aligned with clear vision.
Though we see a lot of startup with handsome amount of funds in their account trying to solve some common problem, there is still a huge scope to develop your venture either with the modified same concept or completely new concept. The only thing that matters is how much passionate you are to chase your dreams and what approach you are adopting to achieve the same.
Wish you luck for your startup. Stay tuned with FS to know more.