WHAT TO DO WHEN YOUR START-UP IS FAILING

Step 1. GET TO THE ROOT OF THE PROBLEM

The majority of start-ups fail; some estimates put that number at a 90% failure rate.

But here's the good news: some of these would-be failures CAN pivot, but only if the executives are willing to get to the root of the problem

 

Failure to Sell

Are you failing because you’re not making sales? The bottom line is that if your business cannot make sales, it cannot survive. You have to get an honest assessment on WHY you cannot sell your product or your service.

 

Is there an Adequate Market for Your Product?

I was once told by a CEO of a Start-Up that their company is a co-inventor company, meaning that their company researches what other companies are doing and “steals” their ideas. This could be an effective strategy if the new product solves a problem that old product did not, but if you simply steal ideas and replicate products that already exist, you lose the advantage of being first to market, and competing becomes a game of selling it cheaper instead of getting the premium prices that new products can demand.

If you did create a new product you should be asking yourself if you’re marketing it in a way your audience understands. When Zen Desk first began to scale, they struggled to communicate how their product solved a problem for the consumer. They had to really simplify the message so consumers could understand what the product was, how it worked and how it solved a problem. Once they got the message right, they started to make their sales.

 

Is Your Product Priced Properly?

Bringing a new product to market can be tricky because there often is a lack of data on which to base your pricing strategy.

 To complicate the issue, product pricing is not always about being over-priced. I recently worked with a software manufacture who created a well-functioning out-of-the-box software solution, but it was so inexpensive compared to all the competition my first instinct was to question the quality of the product.  Product pricing is all about perceived value, so over-pricing and underpricing can hurt you. When new to the market and offering a lower cost product, the marketing plan should be strong enough to support the product.

 

Is Your Marketing Working?

Look at the marketing process and see where customers are falling off in the process if you are getting a lot of first-time customers but not a lot of repeat clients you might need to ask customers for feedback. If you are not getting leads or first-time customers, you might need to make sure your Sales Team is working for you and that your marketing materials catch the eye of your potential clients to draw them to your product.

 

Is Your Sales Team Working for You?

Often start-up businesses only have one or two sales people, so it can be hard to compare performance. If you’re selling biotechnology or medical devices that require medial and technical knowledge to reach your target audience, and you hired a former finance guy who was bored with his old job and convinced you that sales was his new forte, you may be killing yourself with unqualified sells people. Does your marketing team fully understand the product and it’s benefit to the client? Can they speak fluently to potential clients? Are they able to be convincing and explain how the product could work in the client’s environment?

 

You're Running Out of Money

Are you failing because you’re running out of money? Start-ups are notorious for running lean. Many of the great war stories include situations such as maxing personal credit cards, borrowing from a great aunt and barely scrapping by on payroll for some period of time.

However, if your Start-up was blessed with millions of dollars, the real problem could be a lack of financial planning and control. Failure to create and manage a budget is a recipe for running out of money because you simply won’t know you’re running out until….. you’re out. Oops.

"The predominant cause of big failures versus small failures is too much funding," Ghosh says. "What funding does is cover up all the problems that a company has. It covers up all the mistakes, it enables the company and management to focus on things that aren't important to the company's success and ignore the things that are important. This lets management rationalize away the proverbial problem of the dogs not eating the dog food. When you don't have money, you reformulate the dog food so that the dogs will eat it. When you have a lot of money you can afford to argue that the dogs should like the dog food because it is nutritious."

Starting out with a project plan ahead of time is a critical part of the overall strategy of a start-up company. Understanding clearly where the costs are and planning for the hidden and surprise costs is paramount.

Step 2. PIVOT

Rarely does a start-up idea come to fruition in exactly the way the entrepreneur imagined it. As you go through the process of creating and constructing, some ideas just won’t work and others will evolve into something better than imagined. But as an innovator you are always looking for a path. 

It is entirely possible you have to go back to this early thinking and find an alternate path. That could be a product revamp, a complimentary product or a marketing and sales overhaul.

 

The Revenue is Just Not There

Several companies have created successful products and acquired a substantial customer lists but still failed because the revenue was not there. Canva had 1.4 million customers but failed because the economics of the business did not work. We live in an increasingly smaller world with more and more competition, and Canva did not have a revolutionary technology, even though they did have a product they could sell.

 

Step 3. COMMUNICATION IS EVERYTHING

Doing nothing” is certainly an option … but it’s a decision in itself, and often one that won’t lead to anything positive.

 No matter how tempting it is to crawl under your desk when things are bad, this is the time you have to communicate better than ever.

 

Know that your employees want you to succeed.

Like you, most of them have been putting their heart and energy into your business, so they care. Being open with employees about the financial situation builds trust and provides them an opportunity to help you. I took over a business that was failing one year and put the budget on a protector for the staff to see and provide feedback; I expected some good ideas, but I was astounded by the things they were willing to sacrifice or change because they understood the financial situation. Your staff become part of the business and you must recognize that they can contribute to its success, especially when they have the information they need to help you (and themselves) to succeed.

Know that your vendors want you to succeed;

If you succeed, your vendors get your continued business which is a win-win. The worst thing to do when you are not going to make your payment is to hide. You have to get on the phone and call each vendor, explain that you are a start-up, and that like many start-up’s before, you are struggling as you bring your product to market. Let them know you value their services and ask them to put your bills on hold temporarily while you get your sales up. If you ignore calls from your vendors, you will create animosity and distrust instead of possibly getting the help and support many will be in position to give you.

Step 4. HAVE AN EXIT PLAN… OR... THREE

Make the move to seek out complementary companies that might find value in an acquisition; in some cases, a mini-IPO could be the answer; but if there is not a solution for your company, choose to wind down in a controlled fashion where the communication continues to be open and honest with employees. As hard as the business failure will be for you, remember that your employees will also feel the pain of failure. Provide employees the opportunity to wind-down with you, give you feedback, and transition to new jobs.

Communicating with customers, investors and vendors will help you maintain your relationships. It is highly possible you will start over, on this business or another, and highly probable you will need your colleagues again.

 

Step 5. BE WILING TO START OVER

Winston Churchill once said: “Success is the ability to go from one failure to another with no loss of enthusiasm.”

Most of us think of ourselves as failing or succeeding. As in “I am a failure” or “I am successful.”

 

Failure ←SELF → Successful

The reality is that failure can be the path to success, and despite our refusal to associate the word failure as something positive, we fail to varying degrees most of the time we try something new. The bottom line is that without the information from our failure we will not, and possibly will never, discover what does work.

SELF → Fail → Fail → Fail → Fail → Fail → Succeed

Get inspired by these people who failed—and then ended up changing the world.

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