Bad product or service design is the first and biggest potential pitfall for a start-up. Here are five more with suggestions on how to protect against them.
1. Weak team

People are everything, even greater than the product. Strong leaders are quick to discard weak ideas and innovate to stay float. That’s why investors carefully evaluate the qualities of founders before committing funds.

Strong leadership can take care of all aspects of the business. Vikalp Srivastava, co-founder of the failed start-up Blueumbrella Technosolutions, a software company, believes two heads are better than one. “Having a co-founder who shares your wavelength and complements your skills improves the odds of success. A co-founder also makes the going more interesting,” he says.

It’s another thing that finding the right partner is no mean feat.

If all the founders are raw, Srivastava suggests getting a mentor with relevant domain and start-up experience to handhold the start-up and to tap a bigger network.

It is as important to get the right employees. Akash Shukla started up indianmedicoz.com, a doctor consultation portal, with a team of freelancers. He soon realised this wasn’t practical. “Freelancers weren’t reliable. I couldn’t even train them.”

So with his second venture, Shukla employed full timers, who he trained. He also adopted a more hands-on approach, monitoring every task.

2. Paucity of finance

Finance isn’t something to be worked out as you go along. It must be provided for at the outset because a business needs money to meet daily expenses. Before starting Outgrowth Digital, Shukla saved enough money to survive at least a year, which helped get by.

Savings aside, cash flows from sales and in the early days of a business, from backing. Getting angel backing takes a lot of pressure off the founders. But if you’re only relying on sales to make enough to meet expenses, the business must grow fast.

“If you run out of working capital, it’s all downhill from there,” cautions Srivastava.

“With Blueumbrella Technosolutions, we were floundering for the want of cash in barely six months. More of our energy went into worrying about money than into product development and growth.”

Adopting frugal ways helps to lower the burn rate and make cash reserves last longer. Young Srivastava and his friends thought they had hit a gold mine when they signed on one big client fairly soon.

“Early success went to our head. To support future growth we employed more people and shifted to a bigger office—all this, when we were barely breaking even. Big mistake,” he shares.

3. Poor business model

An idea can truly be called great only if the founders can make money off it. That entails having a solid business plan spelling out how the idea will be monetised. A business plan ties in operations with finance because it details how the idea will actually generate a cash flow. What price is proposed to be levied on the product? How will the business acquire customers, at what cost and for what lifetime value? Attracting the first few customers is fairly easy. Thereafter it becomes more expensive.

Srivastava and friends had no business plan. “We were going with the flow, hoping and praying we would succeed,” he recollects.

A business plan provides a foundation to measure success against. As importantly, it’s a document every investor wants to see.

4. Poor management of resources

Appropriate processes must be established to manage finances, time and effort. Rupesh Kumar Shah learned this the hard way.

Shah started Intux, a company offering training in open source to engineering graduates, with his college chairman. Shah handled deliveries. He was happy to let the chairman handle accounts and company matters as he had no experience in those areas.

The business did well, training some 6000 students in six months, earning 60+ lakhs in revenue. In all that time, however, no in-house admin team was created. Shah assumed that accounts and other formalities were being taken care of.

Before long, Shah realised he was being cheated. When repeated requests to create an in-house accounts section fell on deaf ears, he walked out, and made sure he did differently the second time. “When I started InOpen, a company developing academic content in partnership with IIT Bombay, I created an admin team at the outset itself. Transparency and proper business processes are essential,” he says. It has helped InOpen attract investments from marquee VCs in the country.

5. Lack of marketing skills

Naïve start-up founders assume they’re the only ones out there with the idea behind the business, or worse, that a great idea will automatically succeed. Even if competition is limited, a start-up must get word about its products and services out through every possible channel. Shukla rues not making good use of public relations and advertising with his first venture.