If you ask just about anyone about starting a business, they will tell you that most startups fail. Research has shown that startups have over a 50% chance of failure in the first 5 years, which makes it a very daunting challenge for business newcomers to begin their own venture, especially if the business requires a large amount of upfront capital to begin.
On the other hand, it does not take long to find stories of many startups evolving into multimillion (and billion) dollar businesses, which creates an allure that is nearly impossible for budding entrepreneurs to pass up. This is why the risk of becoming an entrepreneur is worth taking – the potential payout for getting past the high odds of failure is high, and for that reason, we see budding entrepreneurs start new businesses every day. As the saying goes, high risk leads to the potential for high rewards.
In this day and age, it seems that everyone has some sort of business idea, and with today’s advancements in technology and rapid expansion of platforms to assist entrepreneurs in starting their venture, the world of entrepreneurship is growing like never before. But before you start your own business, it is important to realize that there is a difference in those who have ideas and those who are able to turn their ideas into a successful venture. Throughout my life, I have been heavily interested in business, and in both formal and informal learning, I have studied businesses of all sizes, from startups to major corporations. The allure of entrepreneurship has affected me as well, as I started my first business during high school, and attempted to build a couple of startups during college.
In this process, I have participated in a number of pitch competitions and seminars, where I have met founders who have grown their startups into multimillion-dollar businesses, but I have also met founders who have failed in executing their ideas for a variety of reasons. As someone who has not been on the multimillionaire side of the table, I am probably not qualified to guide you in creating a multimillion-dollar business; however, I can tell you what I have learned about entrepreneurship and business during this experience, and what I have seen the successful entrepreneurs do that others did not. In short, I have formed the conclusion that there are 3 key areas in which a startup should address to succeed in entrepreneurship competitions, VC pitches, and in the overall market: investability, scalability, and sustainability.
The first of these principles is investability, which is critical at the pitch competition and fundraising point in your business. Concisely, investability is the level and timeframe at which your business will be able to provide returns on investment to its investors. For some companies, the answer to this question is tied to the scalability question, as the ROI is generated based on product or service sales, and with larger market share, the company will make more money and can provide larger returns to its angel and early-stage investors. For others, it isn’t as simple as scalability, as the ROI will stem from licensing a patent or being acquired by a larger company. Regardless of the answer to this question, your startup should consider this question during the value proposition process.
The second principle is scalability, which is the level at which your company can scale. This can be answered by the market share in which you believe your startup can acquire in the industry, as well as by the profit margins your business will generate. Market share is important because it is the level at which your business will have to compete in the marketplace, whether it is with large corporations or other small businesses, and it is a direct indicator of the revenue that your company will generate. Market share alone, however, is pointless without decent profit margins, so it is important to address this in your plan to scale – especially if you are able to decrease your product cost over time. For software startups, your major cost is the initial product development, so your profit margins should increase over time (as long as your software is developed efficiently and is mostly free of defects and bugs at official launch).
The third and final principle is sustainability, which may be the most difficult question for a startup to answer. This is the method in which your company plans to stay afloat if new competitors arise, the market changes, and/or technological innovations render your product less useful. This question is difficult because the answer is both complex and uncertain, but it is necessary to think about. Even startups with patented innovations should address this, as technological innovations and market changes could reduce or remove their competitive advantage. To be successful, startups should think about this answer and address it, but the answer should evolve with the business. As the saying goes, “there is always room for improvement,” and even if you have a patent on the mousetrap, someone can always make a better one that is not covered by your patent.
So, whether you are a budding entrepreneur preparing for a concept pitch competition, someone who is looking to start a side-hustle, or if you’re already a business owner, I hope these ideas are helpful to helping you grow your business, whatever it may be. Even though the risk of your startup failing is high, the monetary and internal rewards of building a business that improves the lives of others is irreplaceable, so if you believe in your business, you should pursue it!