Friday, October 2, 2015

5 Unpleasant Startup Surprises and How To Recover

cash-register-empty By definition, every startup is predictably unpredictable, since new solutions have no proven track record, startups are usually building a new market, and the world around them is changing faster than ever. Yet, as an advisor to startups, I see some common disasters, and recommend some anticipation and recovery moves that can save every entrepreneur some painful time and money.

Five major elements of every business include your people, product, opportunity, money and marketing. While every entrepreneur needs to remain upbeat and optimistic on all of these, it is also smart to anticipate the worst case scenarios that are possible with each. Prepare ahead of time to prevent or head them off quickly, before it is too late, as events unfold:

  1. Key people let you down. In all startups, one of the key concerns and biggest disaster potentials is the loss or lack of commitment from principal players. The first rule to remember is the old saying, “an ounce of prevention is worth a pound of cure.” Hire carefully and slowly, with an overriding focus on skills, experience and commitment.

    Don’t rely on friends, family and interns. They may come cheaply but will likely cost you dearly when times get tough. When people problems arise, it is critical that leaders act quickly to visibly fix them, rather than ignore the problem or carry under-performers in lieu of replacing them. Use experienced recruiters to assess and strengthen your team.

  2. The solution fails to come together. Innovative products and services always take longer to develop than anticipated, and quality problems pop up where least expected. Delivery and cost milestones are missed, which derail marketing and rollout plans, de-motivate the supporting organizations, and drive costs into worst-case scenarios.

    Even though invention can’t be scheduled, detailed planning does work, both on the product side and the business side. Written product specifications and business plans pay big dividends. Bring in expert advisors and mentors to set initial goals, and build recovery plans. Make sure all new development is buffered, rather than stretch-oriented.

  3. The market changes faster than your startup. No matter how certain you are that your solution matches the market need, you probably missed it to some degree on first entry, or the market changed while you were building your product. Startups are all about change, but entrepreneurs can be slow to change, due to passion and stubbornness.

    Assume your startup will have to pivot at least once, so don’t let your team be caught off guard and devastated. Smart entrepreneurs have metrics for assessing their progress against milestones and regularly communicate new insights to the team. Update your plan at least once a month. Don’t wait for a crisis to drive change.

  4. The money runs out before revenues start. Almost every startup underestimates their costs, and waits too long to raise more money or implement “Plan B.” Managing cash-flow must be the number one priority of every entrepreneur. Write every check personally, rather than relying on a bookkeeper or administrative help.

    Again, expert advance planning is the key here for assessing the likely costs, as well as managing payables and receivables. Don’t allow your startup to “fail by success,” meaning too many orders delivered and inventory required for big customers, before their long payment cycle kicks in. To prevent this, build a buffer and line of credit.

  5. Word-of-mouth marketing doesn’t work. No matter how great your solution, it takes real marketing effort, content and investment to get attention these days. Many entrepreneurs assume everyone will feel their passion, and find and promote their solution with the same zeal as their friends and family.

    Thus every business plan needs specifics on cost and content for marketing, with measurements to assess progress. Innovation and creativity are just as critical for marketing as they are for solution development. Don’t wait for your worst case scenario where no customers show up, and expect that slashing the price will solve the problem.

Experienced entrepreneurs have learned that unpleasant surprises are the way of life in a startup, and a big part of the satisfaction is beating the challenges. It’s a lot more fun, and much less risky, to learn from the worst case scenarios of others rather than paying for every mistake every time.

Marty Zwilling

*** First published on on 9/23/2015 ***




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