As a startup CEO, I slept like a baby. I woke up every two hours and cried.
In those immortal words, Ben Horowitz, co-founder of venture capital demigods Andreessen Horowitz captured the essence of what every startup founder feels for the first few years at the job.
Once the rush of excitement at staking out your own path fades away, startup founders are left grappling with the realities of nurturing and growing their dream from an idea into a real business. Given that 50% of startups fail within the first 5 years and 70% fail within the first 10 years, setting up a startup venture seems like the easy path. The tough part is growing your startup and nurturing it for a lifetime of returns.
Growth is the result of doing the right things at the right time with consistency. The reasons why most startups don’t grow is that they don’t know the “right things to do” for achieving growth. So let’s take a peek at the top five offenders in my book.
Poor Product-Market Fit
Consumers face a problem. You have a product or service that’s the perfect answer to the problem. Consumers love your product. There’s “product-market fit” for you, in three sentences. Well, almost.
Product-Market Fit or PMF is the first step towards building a successful startup.
It’s not enough that there’s a ready market for your product. Demand for your product needs to be steady, scalable and most importantly, profitable. A consumer who admires your product but can never afford to buy it, is an example of a misaligned product-market fit.
There are various ways to ensure PMF, with nearly all of them starting with understanding your customer.
- Get one on one with your potential customers and get to know their most critical pain points.
- Check how these fit with your product capabilities. Consider if you can tweak your product to fix their problem areas.
- Check if your addressable market is large enough to offer you scalable growth for the foreseeable future.
- Get continuous feedback and iterate to keep your product as relevant as possible.
No Attention to Customer Retention
As a startup, it’s logical that you spend your days reaching out to as many new users as possible. This is process of acquiring new customers, establishing your business and creating a market is necessary, without a doubt.
However, a startup’s troubles begin when it acts like it’s in customer acquisition mode even months and years after its launch. Once you’re already in business and have served a few customers, it’s your job to make sure your customers are a happy lot. Not only do satisfied customers spread positive word of mouth for you, they’re also more likely to buy again from you at zero acquisition cost.
Data compiled over the years supports the fact that it’s decidedly easier (and cheaper!) to attract an existing customer than a completely new one. In a study of retailers across the US, Adobe found that repeat visitors were the ones that consistently brought in the big bucks for retailers. Though they made up a mere 8% of total traffic at retail stores, they accounted for 41% of the revenue generated.
The moral of this story? Go aggressively after new customers, but do not forget about your existing customers. They are your insurance policy when times get hard and new customers are tough to come by. This applies all the more to retailers and local businesses — all you have to do is integrate a loyalty and rewards app like Goody with your ecommerce site and use customer data to increase revenue.
Manual Marketing & IT Operations
Bootstrapping their way through the early days is not new to the average founder or startup CEO. In their drive to save every penny and plough it back into their fledgling business, too many startups waste their precious time and resources on doing mundane things that may be done much more efficiently by a third party or even by an automated software solution.
Automation comes in many shapes and sizes. There’s marketing automation that can transform your customer engagement, while simultaneously making your marketing processes more efficient. A study of over 200 marketers in the UK by email marketing platform Adestra found that time savings were the biggest benefit of embracing marketing automation according to 74% of respondents.
But marketing is not the exclusive beneficiary of efficient automation. Take information systems management, for example. IT managers spend hours every month installing or updating software, managing users and permissions, and more.
“Take the case of software updates,” notes Ashley Leonard, CEO and President at Cloud Management Suite, ”Performed manually, IT staff of a medium-sized organization could be looking at working on hundreds or even thousands of devices. But through automation, these updates could be configured to download and install as scheduled, minimizing the work hours for teams.”
Automating tedious IT tasks such as patch management and software distribution can save both time and money for your startup, and make sure that IT won’t be a monkey wrench in your growth process.
Insufficient Data, Inefficient Metrics
Those who fail to learn history are doomed to repeat it; goes the popular saying. The same adage rings true for businesses that do not track their key business metrics and pay scant attention to historical data.
Data is your truest barometer of business performance. It shows you without any biases, exactly how well or badly your startup’s been doing. Without a way to know where you stand, it’s impossible to chart the path for the future. In short, you need to track every relevant piece of data to fuel your business. The operating word though, is relevant.
The type of data that you need to focus on changes as your business grows and flourishes. The graphic below shows how startups need to go from tracking traffic and engagement metrics in the early stages of their existence and then progressively move on to conversion, retention, CRM and forecasting data. Complex data models, data testing and so on can wait till you’ve started up the growth slope and are hot on the gas pedal.
The most critical top level metrics that startups must track include:
- Size of customer base
- Churn rate
- Acquisition cost
- Return On Ad Spend (ROAS)
- Retention cost
- Customer Lifetime Value (CLV)
It’s not enough to track your key data. Real results come when you dig deeper into your data to find out why certain metrics are trending up or down. Understand the causes and work on fixing them to keep the business growing at your target rate.
Remember, data collection and analysis is not the onus of just one person or the “analytics” team. Instill a numbers-driven culture in your startup from the very beginning, so that each employee realizes how they contribute to the growth of the business.
Keep Up with Change
A startup is not a “start it and forget it” type of machine. It needs, nay, demands tender loving care from every member of the startup team. It also rewards them handsomely when they manage to get it right.
So, which one of the mistakes above is holding back your startup? Found it? Get cracking on it, pronto!