What differentiates a successful start-up from a failed one?

I am a keen observer of the start-up space in India. Nothing interests me more than reading a success story of a start-up on YourStory or any similar forum. I was really happy for Shradha Sharma and the YourStory team when they recently received their first round of funding from Ratan Tata and three others. It was a strong message that one can actually make a business out of writing stories on entrepreneurs who want to make it big!

Shradha Sharma bootstrapped for close to 7 years before her start-up could receive its first round of funding. What does this indicate? If you believe in the vision of the organization you have founded and strongly work towards it, nothing can stop your start-up from succeeding. Right?

Not really.

From what I’ve gathered, there’s more to starting up AND succeeding than meets the eye.  Reports floating around on the internet say that 85% of start-ups fail. No one wants their enterprise to fail. What, then, makes it so difficult for a company to succeed in their industry?

At the risk of sounding preachy, let me try to list down a few things that differentiate a successful start-up from a failed one.

Clarity of Vision

While I am not denying the fact that start-ups can be founded and run by a single person, it’s a fact that most start-ups are founded by two or more people – a set of co-founders. Infosys, Google, Flipkart and most other successful start-ups were founded by a set of two or more people.

In that case, alignment of the organization’s vision among the co-founders and working towards it becomes very important. For example, if Sachin Bansal wanted to start with books and Binny wanted to capture the mobile phone market in 2007, Flipkart would have been nowhere today.

Building the right leadership team

Many a time, hiring the right person for a role can be taken for granted. In reality, that’s not the case. One right senior hire has the potential to make or break the start-up’s future. The person should first align with the organization’s vision and then polarize his complete team’s focus towards achieving results that will take the company forward. Keeping the employees motivated, rewarding them for doing something great, keeping them aligned with the thinking of the top management are some main responsibilities of the senior team which may well decide the trajectory of a start-up. Start-ups cannot afford to ignore these softer aspects of business.

Understanding your Core competence

Does Porter’s Generic Strategies ring a bell? In his book “Competitive Advantage: Creating and sustaining superior performance”, Michael Porter talked about three generic strategies: Cost Leadership, Differentiation and Focus. Running a business is all about getting more sales, irrespective of the industry you operate in. While in e-Commerce or FMCG, “sales” has a direct connotation, in other industries, it might be indirect. Google wants more people to click on their paid ads, YourStory wants more readers, NGOs want more sources of income, and so on. At the end of the day, how is your start-up going to be different from those which are already present in your industry?

Porter says any company needs to tread the path of one of the three generic strategies: Cost Leadership, Differentiation and Focus.

When ShopClues was started, Flipkart was already a major player in India and there were other smaller players too. So what did ShopClues do? It “differentiated” itself by being India’s first online marketplace. Looking at the success it garnered and the huge potential and benefits of operating as a marketplace, other players shifted to this model too.

Jabong, on the other hand, took the “Focus” approach, venturing only into the lifestyle vertical. Unlike Flipkart, Snapdeal, Amazon and ShopClues which were Horizontal e-Commerce firms, Jabong chose to focus on lifestyle and make it big there. And they did. Because of this focused approach, they were able to offer a lot of things to the customer which other players in e-Commerce couldn’t.

The most recounted examples for “Cost leadership” are the no-frills breed of airlines spearheaded by Indigo. By cutting operational costs, they were able to transfer the benefits to the customer.

Good customer retention strategy

Marketers say that the cost of acquiring a customer is generally 15-20 times the cost of retaining one. Start-ups can sometimes get into this loop of spending big on customer acquisition but not focusing as much on retaining them. A successful start-up has fundamental strategies in place to balance out both.

Traditional ways of acquiring customers involve Paid search, Display Ads, Print Ads, TV Commercials, Outdoor and the like. Start-ups which do not have too much money generally focus on other organic ways of acquiring customers. Referrals is increasingly being used to acquire new “good quality” customers. One other way is by being strong on long tail SEO. For example, if your start-up is a taxi aggregator in the Gurgaon region, you will have to ensure you feature in the (first page of) organic results when someone searches for “Book Taxi Online Gurgaon” in a search engine.

Coming to customer retention, there is so much a start-up – any start-up – can do with complete customer information (demographics, purchase history) handy. You could shoot out customized e-mailers to the customer, send a push notification in a sale he/she might be interested in, or, at a much higher level, create a company-level loyalty program to keep bringing your customer back. In retail, Shoppers Stop and Lifestyle are pioneers in Loyalty Program.

The fundamental principle behind spending on retention is: you would rather spend 100 rupees to retain a customer than spending 1000 to acquire one.

Start-up India, Stand up India

With our Hon’ble PM Narendra Modi coming up with the “Start-up India, Stand-up India” slogan during his recent I-Day speech and with Government rules creating an environment for new businesses to thrive, these are exciting times for the start-up space in our country.

If start-ups have clarity in vision with alignment within the organization, build the right leadership team, understand their core competence and execute a good customer retention strategy, they’re going to succeed more often than not.

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