A Startup Is Not An Ordinary Business
It seems entrepreneurship has come of age; people do not look down on you if you were to tell them you have chosen the hard path to be a job creator. Entrepreneurship is a rewarding career option. However, one must be clear on the definition of a startup and that the failure rate can be as high as 75%, meaning that 7 out of 10 fail within three years of starting. The burial of startups is quite and leaves the entrepreneur bruised and at times without any money. Persistence is the key to being successful in this journey.
Globally, the ever-increasing growth rate of the startups is being fueled by four key trends. It’s being dubbed as the information revolution.
– The acquisition channels startups use to acquire potential customers has become cost effective in comparison to the past decade.
– Secondly, purchasers of products, both consumers, and enterprises, are now inclined to work with startups and avail their goods and services.
– Thirdly, the investors are willing to invest in startups with high-growth despite the greater chances of losses faced by the startups in the seed phase. This has happened due to the rise of companies like Uber, Airbnb, Flipkart and many others, which gave 1000X returns to its investors.
– Lastly, technology has made it easier to launch a business at 100th of the cost prevailing twenty years back.
A startup is designed to grow fast; growth is the biggest ingredient required for a startup to sustain.? Contrary to what everyone thinks, not every company, which is founded, is a startup. Startups are designed to grow faster with time as they have a different sort of DNA compared to other businesses. For a startup, the first task is to decipher what your customer?s want and how much are they willing to pay for it. Secondly, the market for the product or service has to be very big so that you can scale it up once you know the product/ market fit.
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Even though the failure rate of starts is three ? five times more than that of the ordinary businesses, It has always been better to start a startup rather than setting up an ordinary small business as the biggest constraint for a normal business is its inability to participate in the global market sans recourse to heavy investment. For example, if you start a bakery business you will be competing with the local bakers, but if you start a search engine, you will compete with the whole world out there, from Russia to Africa. If you suddenly get 10,000 orders a day in your bakery you won?t be able to cater to the surge in demand, because humans have to bake it, contrast this to adding more servers to your data center to manage increased search queries.
Hence, a startup is something that can reach out to a large number of people and helps you to deliver to a larger market. Because you are scaling with technology, that is using more of tech rather than people to scale your business, the staff or skill shortage does not hinder your plans. Technology backing allows you to build a billion dollar business in three ? five years, Contrast this with an ordinary business where it may take two or three generations to do the same.
Another advantage, which startups offer over small businesses, is the absence of bureaucracy leading to faster decisions. Startups offer lesser overheads costs as there are fewer people using fewer resources to develop ideas into product and services. They also give an advantage of more flexible pricing and provide an open room for negotiation. The growth of a startup is usually divided into?three?phases:
– The initial phase is marked by slow growth or no?growth. During this phase, the startup tries to figure out what it is doing.
– As the startup progress and figures out what has to be done, how to target people and reach out to them, there?s a period of rapid growth.
?- Gradually with time, the startup grows into a successful company.
But the growth rate will slow down in this phase as the company is starting to bump against the limits of the markets it reaches out to.
Together all these three phases turn out to make an S-curve. The length and the slope of the curve will determine how big the company will be. The slope of the curve determines the growth rate and the market valuation of the startup. The expected calculation of value varies from person to person as the value depends on the utility function of the money, for example earning the first billion is more important than earning the subsequent billion. The valuation of a startup is more of an art than a calculation.? Are you ready for doing a startup?
Jappreet Sethi
