Learning from Failure – Early Hiring Burns Cash

Timing your first hiring for your startup is very important for an entrepreneur. Hiring too early leads to wastages which can prove very crucial if you need to bootstrap your venture. Identifying the gaps in your startup, making a list of the precise skill sets you require and then finding the right profiles to match the requirements is the primary task and responsibility of the entrepreneur. The more the inaccuracy or deviation in this, the more the wastage of money and time.

Wishareit is a social gifting platform which made this very mistake. On receiving a positive feedback from its initial users and being overly optimistic, the startup hired too many people too soon which cost them months of runway.

Advice – Identifying the gaps in your startup and filling them with the right people is the right way to approach hiring.

Learning from Failure – Co Founder Disagreement Harms The Startup

Building a startup is a long and difficult task. In order to do so, the team must be aligned in the same direction and must have a common vision for the startup. If there are any conflicts within the team itself, growth is not possible. It is similar to pulling any object. If 2 people do not pull it in the same direction, it does not move at the rate if can if both pull in the same direction.

This is what happened to my first startup Bitequest. We were a team of 3 co-founders. I believed that an online restaurant discovery tool was the right way to build the company while the other 2 felt that building an offline restaurant call center was the right way to move. Due to internal conflict, we noticed that our startup had stagnated for a period of more than 8 months. Eventually, I exited the company.

Advice – Founders are the parents of a startup. Having a similar vision and understanding is a MUST to raise the startup in a uniform and optimum way.

Learning from Failure – A Wrong Concept Spells Failure

A startup built on a wrong concept is likely to fail. By wrong concept I mean a space which is either not present, very small or is not one which can be monetized. Though a startup may be able to create some value initially, the inadequacy of the targeted space will eventually result in the startup failing.

Ratemyspeech was a startup which focused on improving presentation skills using a community based feedback platform. The startup had to be closed down due to fact that most people did not care about a service like this and would not be willing to pay any money for it. As the founder says in this article – “Most people (95+%) just don’t care enough about their presentations. So they will not take the time to prepare a draft speech, upload it, expose it to scrutiny, then take the feedback onboard and rework it. The rest, the less than 5% on the other hand takes it very seriously, and many of them have a strong network of people who they can ask. But they wouldn’t pay for some service to make this a bit easier. For them, we would not be able to deliver value.”

Advice – Research the market you are targeting time and again to ensure that it is big enough and monetizable for your startup to sustain.

Learning from Failure – Plan your Cash Requirement

Running out of money is a common cause of startups failing. You may be building a great product, but money in the bank is what can keep you going. Planning your cash requirements accurately upfront itself ensures that you do not get into a position where money, or the lack of it, blocks the path to reach your goals.

Drawquest was a startup looking to create a drawing community online. The product got great traction. It was downloaded more than 1.4 million times in a year and had more than 25,000 people using it on a daily basis. What the business was not able to do was to monetize this traffic.  The startup could not raise investment as well and eventually ran out of cash.

Advice – Financial planning is crucial for any startup. Planning out a requirement of cash helps the entrepreneur thinking about arranging the same, without having to run out of money.

Learning from Failure – Keep an Eye on Competition

A major reason for a lot of startups failing is that they fail to keep an eye on their competition. In a highly competitive world, it is very important for a startup to identify trends, assess them and implement the promising ones before a competitor does. Startups which are not agile and don’t adapt fast enough find it difficult to survive.

My first startup Bitequest was one of the first restaurant discovery cum reservation tools in India. Being the first , we were able to get a good foothold into the market. The biggest problem we faced was within our team, we took too much time to make any decisions. There were suddenly a host of startups which entered this market. Our team, since we were the market leader at that time, paid no attention to them. Suddenly, owing to scalable business models, a couple of the new startups were able to raise money and scale up tremendously. We were still doing what we were doing earlier and eventually became a very small competitor in the restaurant space.

Advice – As important as it is to look within, it is also very important to look outside of your startup. Observing, learning and then adapting is key in sustaining your startup.

Learning from Failure – Identify a Real Audience

The first step for an entrepreneur after identifying a business idea is to identify and validate is the idea has a certain audience and target market. Having a few group discussions or surveys of potential customers is a good way to do so. Working purely on a hunch may result in an entrepreneur realizing certain facts and trends later on and facing difficulties along the way.

Travelll was a startup which was trying to leverage the power of social media to the travel space and ended up creating a travel inspiration portal. The team felt that this was a model which was successful in a lot of other spaces and should be replicated for travel as well. Despite a reasonable start, they realized that the audience for this space was very limited. People travelled only 1-2 times a year, as against other activities such as fashion, photography which were more engaging and regularly used by customers. The startup tried to pivot along the way, but eventually closed down.

Advice – A ‘real and substantial market’ is required to build a scalable business.

Learning from Failure – Marketing Drives Growth

A lot of entrepreneurs tend to get so focused on the product that they forget to focus on putting it in front of the target audience. No matter how great your product, it means nothing unless customers get to know about it. Right from the very beginning, an entrepreneur must plan who the product is good for and how the business can reach the target audience in the most effective way at the minimum cost. Not planning for marketing can prove disastrous for a business.

Kinly was a startup which was trying to be a ‘Facebook for your family’. Given the dislike of a lot of users for Facebook, the product got a good initial review from its earl users around and got selected into an incubator as well. The mistake made by the startup was that because of this irrational optimism, the founders decided not to take on any investment, which they required to market the product. The product eventually died a slow death.

Advice – No matter how good a product, it cannot succeed if not visible to customers. Scaling beyond a certain level requires investment in marketing.

Learning from Failure – Business is for Profit

The first rule of business is that we are in it to make a profit. If we cannot, it will not sustain. There exist a lot of areas where real problems do exist, though making money is difficult. We need to clearly analyse and research whether the sector we are entering is monetizable and to what extent.

Poliana was a startup which faced a harsh reality about the sector it was operating in, Politics. It was a political startup aiming to make the communication between political parties and the citizens easier through the use of technology. The team’s entire focus was on making Poliana a great product by solving the problem they had identified, and not on making it a business. What they realized was that owing to the nature of concept they had and the space they were operating it, it became very difficult for them to make money out of something which deserved to be free.

Advice – A startup should definitely be based on solving a problem. However, care should be taken in assessing whether the problem is in a space in which the business can generate profits.

Learning from Failure – Negative Unit Economics

Peppertap was a pioneer in the hyper-local grocery delivery space in India. By October 2015, they were one of the top 3 grocery delivery companies in India, doing slightly more than 20,000 orders per day. It just announced a few days back that it is closing down.  

One of the biggest reasons for its closure was the negative unit economics the business model faced. In India, discounting has been the most commonly used tool by startups to attract customers. Peppertap was also using the lure of cheaper prices to attract customers. Also the committed delivery time (of less than 2 hours) meant that company was having to spend money to create spare capacity in its logistics and supply chain. This too had a significant cost.

The startup was effectively bearing a big loss on every sale owing to discounts and the logistics costs. Since this loss was not visibly looking to come down drastically even in the longer term, the founders decided to close the startup.

Advice – A startup can bear negative unit economics in the short term. However in the longer term, positive unit economics are a must for the business to sustain.

Learning from Failure – Premature Scaling

Rewardme was a loyalty program for restaurants and retailers which closed down in mid 2015. The startup was funded and spent a lot of money in trying to acquire customers and scale the business. What made them close shop was that they spent huge amounts of money in acquiring customers without really having a clear business plan and product market fit. Their customer acquisitions costs went through the roof and eventually the startup ran out of funding.

Advice – Cash is king. You need to find the best product market fit before deciding to spend cash on scaling the business.

Learning from Failure – Have a Robust Business Model

EverythingMe was a popular Israeli third-party app launcher which shut down in October, 2015. Despite having raised over $40 million till date and having over 15 million downloads, the founding team of the startup had to shut down it’s doors due to the lack of a robust business model.

The closing down of a startup like this clearly indicates how important a business model is. Having seen amazing traction and being on e of the most loved apps once could help the team convert these numbers into a successful and sustainable business.

Advice – Go for growth. Growth is what drives a startup. But also have a plan to monetize this growth once you have reached certain milestones.

The Chicken & Egg Problem of Networking Startups

This is a problem which is prevalent in startups focused on building traffic or user networking. Getting the first set of users is difficult as the incentive of these users is dependent on some factors which in turn are met only once these users come onto the website.

This would clearer with some examples.

Facebook faced this problem initially. A user would not see the value of the website until he/she had atleast 10 friends. The challenge the startup faced was to get a group of friends collectively so that they could experience the benefits the portal had to offer. Most social networks have faced this problem and require a minimum threshold of people to join before users can see the benefits and get engaged with the platform.

For a classifieds site like Craigslist, this was a problem as well. Buyers of goods/services would not want to come and use the website until they knew sellers were there on the platform and vice versa. Only getting both sides together could enable users to experience the potential benefits of engaging with the platform.

Dating apps like Tinder also face a similar situation early on. Boys would like to enroll only if there are profiles of girls on the platform and girls would start enrolling when profiles of boys were there on the platform.

For a new entrant in either of these business models or similar to them, this ‘chicken & egg problem’ has to be thought off and addressed in the initial days itself.