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Opinions expressed by Contractor the contributors are theirs.
Too many entrepreneurs are looking for this one magic solution – an exciting new technology, perhaps, or their own determination to make the world a better place – to overcome the shortcomings of their startup model. However, the magic bullets are not enough to ensure the success of the business. If the elements of your business are not expertly developed and aligned, even the best dream will be in danger.
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The common failures that I see in this sense are the following: solutions that are “pleasant to have” but that do not solve painful problems; a business model that does not have the means to generate income; and a founder who turned a blind eye to his competitors.
Such failures ignore the essential business elements that investors are looking for before committing to a startup. Here is my list of these elements, which every entrepreneur needs to develop before entering the market with high hopes and (unfortunately) a business that will likely get lost in the crowd.
1. An experienced and competent team on board
Even the best solution will not overtake the crowd unless it is led by an equally exceptional team. In fact, most investors will argue that the team is more important than the solution to a successful startup. They are looking for a balanced mix of people with complementary skills, experience and determination.
2. An important and growing market opportunity
Investors are looking for startups that can reach large markets, that is, those that exceed $ 1 billion and grow at double-digit rates. Small markets tend to change faster with the economy and can be more easily influenced by fashions and competitors with recognized brand names.
3. Focus on a specific market segment
As the founder of a startup, you will not have the marketing resources or brand recognition to appeal to all consumers. Instead, research and quantify the specific demographics of the subset that best fits your solution, and target all of your features and messages to those customers. Targeting multiple segments almost always weakens your business.
4. A short-term customer value proposition
Customers buy solutions whose value is quantifiable for them today, which means a value which, compared to existing offers, is half the price or twice as productive. Long-term value propositions for society, or paradigm shifts in technology, generate interest but don’t close sales in the time your startup needs to survive and thrive.
5. Sustainable competitive advantage
Each solution has competitors and alternatives, or it has no market. Thus, it needs an advantage to rise above the crowd, such as a patent and brands, a unique market positioning or the support of industry partners. Too many competitors or a product with minimal differentiation makes a startup risky.
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6. Production and support of the solution
If your product is hardware, you need manufacturing, quality control and inventory. In any case, you need customer support, formal processes and training in place. As an entrepreneur, make sure you understand your direct and indirect costs, staffing needs, margins and measures to make sure these are in place.
7. Distribution of products or provision of services
Physical products often require access to existing distribution channels. Website and smartphone solutions typically require referral partners and value-added resellers. If your scope is international, country-specific adaptations and translations are probably necessary. Smart startups put them in place early.
8. Validated pricing and sufficient source of income
Prices must be fixed before deployment, depending on the value delivered and the competition; prices must also be tested with real customers. The free products may sound attractive, but every business needs at least one source of income to survive. An understanding of the potential for return on investment is essential for all founders and investors.
9. An innovative marketing plan
Word of mouth marketing is usually just an excuse for not marketing or spending money. In the real world, marketing initiatives that go viral cost a lot of money and effort for their innovation and execution. Investors are looking for details on sales channels, marketing materials, social media initiatives and customer incentives.
10. An understanding of cash flow needs
Many startups fail because of too much success too soon, with no money or investors to cover the subsequent costs of manufacturing, inventory and receivables. Make sure your financial projections quantify the timing and amounts of the investors’ cash injections. This will lead to ROI calculations and exit strategies.
No single quick fix can compensate for all of these critical elements in a business. As an entrepreneur, you have the responsibility to build and execute a solid plan to turn your dream into reality. In my opinion, if you correctly approach the ten elements described above, your start-up will outpace those of at least 90% of your competitors. There is no better way to improve the chances of long-term success.
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