Most entrepreneurial ventures fail. According to Fortune, only one out of every ten startups will succeed. This statistic is what you are fighting against when you decide to start a business.
There are many reasons that new businesses fail. Some entrepreneurs dive right into starting their ventures without realizing that there is no real market need for the product or service they are offering. Other new businesses run out of capital, get crushed by competing ventures or fall apart because they don’t have the right people. In fact, there are so many potential pitfalls to launching a business that avoiding one can put another directly in your path.
The question, then, is about what you can do to beat the odds. How can you put your venture into the 10% of new businesses that succeed?
How to Build a Solid Foundation for Your Company
With every business, the path toward profit and success occurs in the foundational stages. If your enterprise doesn’t have a solid foundation, it won’t be able to withstand the strain of growth and change. A good foundation will give your business the stability and purpose necessary to win over customers and make money.
Is there a need? The first step to building your business foundation is assessing a market need. All the money, talent, and vision in the world can’t rescue you if nobody has a need for the product you are trying to introduce to the world. Everything about your business venture—from how you market your product (and to whom) to pricing strategy—is going to hinge on this part of the process, so don’t take it lightly.
Hiring right. If you have already determined that there is a clear market need for your product or service, your next big focus should be talent acquisition. The founders and co-owners often solely operate startups. In the beginning stages, you will be working in close quarters with three or four other people and maybe no one else.
As your idea begins to blossom, though, you are going to have to bring new talent on board. You might need engineers and programmers to build your prototype; website builders to give you a web presence; copywriters to help you draft marketing collateral. No matter what kind of talent you need, tread carefully. Startups in their infancy are usually small, cash poor, and volatile. As a result, the impact of those first few hires are magnified tenfold (or more) from what it would be for larger, more established companies. Meticulous interviews, skills tests, background checks, and reference checks are all necessary to ensure you hire the right people.
Watch your spending. Another incredibly important thing to remember in the initial stages of a business is not to build expenses in advance. As mentioned above, most startups are cash poor. Even if you have venture backing, that doesn’t mean you have a ton of money to throw around. As such, you need to be careful not to commit to fixed costs or capacity based on assumptions and projections alone. Assumptions can be wrong, and projections can be inaccurate. No matter where you are spending money—be it in product development, employee salaries, marketing, or premises—you need to analyze and validate every dollar you spend. By being more careful with your budget, you will be better equipped to hedge risks and avoid potentially ruinous expenses.
Make thoughtful decisions. But how should you go about validating expenses and hedging risks if you are running a business venture for the first time? One of the big problems many entrepreneurs run into is simply a lack of experience and specialized knowledge. Too often, the people behind startups don’t have an appreciation for the things they don’t know. Because entrepreneurs have to be so independent and self-driven to succeed, they often opt to “go with their gut” on all key business decisions. This strategy might be fine in a more creative realm, but it can be a bad choice for anything related to finances. Rash, gut decisions in this area can lead to reckless spending that drains your coffers and crashes your venture into the dirt before it even gets off the ground.
Know what you don't know. So, acknowledge the things you don’t know or don’t feel comfortable with and put together a board of directors or advisors for your business. All evolving startup ventures need a board, and every board seat needs to be filled by the right person. Don’t just choose friends who are willing to invest some money because they have faith in you personally. Don’t pick family members, either, as conflicts can arise in the boardroom that will tarnish family relationships.
Choose advisors wisely. Instead, choose your advisors or directors based on professional credentials alone. Who has relevant experience in the industry you are trying to target? Who has startup experience and can help you with the more financial or business-minded sides of the equation? Choose people who aren’t friends, but who have the experience, the skills, and the knowledge to give you the advice you need to hear. Too often, friends and family members will try to sugarcoat things or defer to your point of view. Your board of directors or advisors needs to consist of people who aren’t afraid to tell you when you are making the wrong decision. Getting a business to the profitable stage takes a village, and your directors and advisors are the governors of that village.
Make your own luck. Sometimes, starting a business can feel like sitting down at a poker table and making an all-in bet on an incredible bluff. So many of the most successful businesses got there in part because the stars aligned for them. They had the right idea at the right place and the right time and got the right people to help build it from the ground up. Certainly, luck can play a part in deciding whether your venture becomes the next Facebook or ends up a forgotten footnote. However, by heeding the advice provided above and taking the time to build a solid foundation for your new venture, you can at least start to make your own luck. Here’s hoping you get the gift of good timing.