4 reasons why just having a great startup idea is not enough
Developing your startup is difficult enough. Then, you have to convince people to invest. But many still fail. Here are four reasons why
Keeping the proverbial ship on course, is a challenge for any entrepreneur. The probability of running adrift or sinking is high if you do not have the right strategy, right team or right product. To succeed, it takes more than just courage and a vision.
Here are four lessons gleaned from real-life startup failures.
1. Not finding your product-market fit results in no traction
Defunct India-based home automation startup Lumos, comprised of a team of skilled engineers. Although they had the technical know-how to develop their IoT product, they neither used home automation products nor understood the IoT sector.
“Had we been users of existing smart switches, we would have known that the incremental value that our product was offering was quite low. Had we been experts in IoT, we would have known how to price hardware and the difficulties in building it,” said Yash Kotak, Co-founder of Lumos.
According to the seed firm Y Combinator’s Co-founder, Paul Graham, many startup founders were confident in their assumptions that consumers will buy their product, despite not being able to pinpoint who their markets are.
Defunct US-based IoT startup Pay By Touch manufactured biometric payment systems that were the first of its kind. Unfortunately, its product sought to tackle pain points that were non-existent.
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“People think what they are making is cool, sexy or fun, and when they ask friends about it they get answers like ‘Yeah, that’s cool’. To make a product that is actually used, you need to create something that people realise they can’t live without,” said Cassandra Phillips, Founder of Failcon, a conference featuring failed startup founders sharing their experiences.
Kotak advised aspiring IoT entrepreneurs to make a “thorough list of hinge-breaking assumptions for your market, product and competition”, which would help in risk assessment and minimise costly surprises when launching the product.
In addition, IoT entrepreneurs need to figure out whether they are entering a competitive market.
Ivaylo Kalburdzhiev, a Bulgarian entrepreneur who founded the KOLOS IPad racing wheel project, explained in his post that all startup founders need to ask whether they are a first mover in the market or if their product is something that no one needs.
“If it’s really an awesome idea, why isn’t someone else already doing it? Competition usually means there’s a market for it in the first place,” said Kalburdzhiev.
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2. Not validating your customers with hard questions
Lumos also failed to create a persona of its potential customer, thereby failing to accurately project whether its product would be a good market fit.
“One way we could have done it was by selling existing products to our potential customers,” said Kotak.
Engaging customers is just the first step. You also need to ask the right questions.
Kalburdzhiev said that although he was actively seeking customer feedback for IPad racing wheel, his questions were phrased in a biased manner that elicited inaccurate responses.
“I ‘cleverly” put up an online survey and started sending it out to all our subscribers, with biased questions like, ‘You have these problems, right?’ What I should have done is actually gone out of my comfort zone and talked to them one-on-one about their lives, experiences and pains,” explained Kalburdzhiev.
Michal Bohanes, Founder of a failed ingredient delivery service, said in his startup post-mortem post believes that, “You must never, ever, pitch the product to the customer and ask for their feedback.”
The conversation with the customer should be aimed at ascertaining whether your product tackles a problem that warrants tackling.
“To reach this conclusion, don’t ask about their future intentions [‘would you buy this?’], but do ask about ‘past’ behaviour,” said Bohanes.
3. Doing too much, or too little causes your startup to lose focus
For Lumos, it was a mistake to make its product do too many things. It sought to make switches that could automate lights, fans, air-conditioners and water heaters and even planned to automate TV, cars and fridges.
“We were pitching power savings as well as luxury. This made the product and the pitch very complicated,” said Kotak.
“As a startup, your resources are limited. So it is always better to identify and solve one problem very well instead of solving numerous problems in a so-so way,” he added.
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Defunct Toronto-based hardware startup Wattage Inc wanted to build a platform centred around hardware creation and allow customers to assemble the creations themselves. But that scope of focus proved to be too broad.
“Instead of trying to build a platform for hardware creation, we should have focussed on selling a single but highly-customisable product,” said Founder Jeremy Bell.
For Kalburdzhiev, his IPad racing wheel was too niche. He believed that on hindsight, he should have targetted all tablets instead of just the Apple iPad and this could easily have been tackled by adding a universal adjustable accessory.
4. Underestimating hardware and its costs
Kotak believes that building a hardware startup is ’10 times harder’ and that building the prototype is the easiest part of any IoT startup’s product development cycle.
Beyond that, you have to tackle the product design, production engineering, manufacturing, distribution, and marketing/sales.
Getting help from VCs is also more difficult as hardware startups present more risks. In addition, the hardware product validation and iteration cycles are also longer than SaaS startups.
To compound the problem, “Managing cash flow is hard because you have to pay your vendors months before you get paid by your customers,” said Kotak.
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For Wattage Inc, the problem was that they were focussed on building a prototype that was up-to-standard in its technical capabilities instead of focussing on gaining traction and showing their product was viable to investors and consumers.
“In retrospect…we should have released something far more lightweight, and as quickly as possible,” said Bell.
Lessons to future startups
Startups looking to enter the ecosystem would do well to heed the advice of those who have come before them and failed. Even as the startup ecosystem continues to evolve, the lessons gleaned from past failures are universal and would guide any startup that is struggling to get a foothold in any market.
This article was produced in partnership with the Singtel Accelerator Challenge 2015. If you have a great B2C app or smart device that could use S$20,000 and go-to-market partnerships with Asia’s leading telco, apply to www.singtelaccelerator.com before 28 September 2015!
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