Lessons from Failure

Success introduces you to the world but failure introduces the world to you. Nothing could be truer than this. You have heard about success stories of accomplished people but you are unable to reach their heights.

Now, listen to some of the failures to learn and understand what not to do/commit, lessons that success stories will never tell or teach. There is always struggle and pain under the glossy surface. Success covers them up or glorifies, as it suits the chosen narrative, but failure magnifies the underbelly and more often than not, becomes a raison d’etre. The Sun Temple- Konark was not built in a day.

Like success, failure can also happen to any aspect of our life - from relationships to business, and others. What causes them? Can they be mitigated, if not stopped completely? Although there is no magic pill, a complete analysis of the cause-effect scenario will surely throw some light into this syndrome that afflicts everyone at some point or the other.

It is said that success is 99 percent perspiration and 1 percent luck, hence, planning, effort and execution are all equally important. We may not have complete control over external factors that could have a bearing on the results, but our house should be in order, and we should do our home-work thoughtfully and act smartly, considering all aspects concerned.

Nothing succeeds like success. When you face failure, you may be looked down upon, criticised, trolled and even abused for being a failure, but all that changes when you achieve success.

In the context of entrepreneurship, why is it that certain people and certain businesses fail and fold up faster? On hindsight, several issues crop up and an honest and objective analysis will bring up the reasons for failure.

A KPMG report on startup valuation in 2020 found five primary reasons why many businesses fail -

1. Lack of Market Needs – 42 percent
2. Cash Exhaustion – 29 percent
3. Lack of Right Team/Founders Discord – 23 percent
4. Competition – 19 percent
5. Weak Business Model & Lack of Marketing – 14 percent

Let me elaborate on each of the issues mentioned above, and, mostly out of my personal experiences.

1. The product and the market

It’s 5 percent idea and 95 percent execution.

Ideas should be market driven and not imposed. Once you have identified a clear gap between the demand and supply, and a strong need for something, ideation helps. Often, fascinated by their own idea, people try to force a market-fit, which eventually falters. Ideas could be good so long as it addresses the gap in the market, and fulfilling the growing need of large prospective consumers who are willing to pay for it.

It is important to validate your ideas with experts and knowledgeable professionals to not only make them market ready but sustainable as well. Ideas should identify the gap between demand and supply.

More importantly, it should have people wanting to pay for it. Market-fit is important hence, ideas should be market driven and aligned.

Ideas should also be flexible to change course later, if so desired or if the market demands.

It is also important to ensure that buyers and beneficiaries are willing to pay for using your ideas, solutions and products. Ideally, a market survey prior to venturing into the chosen business helps understand the market fully and hence, could position it appropriately.

There are even possibilities that your idea, product or solution aren’t entirely new and exist elsewhere if not in the same market. If so, it’s better to tweak the same, conducive to that market and localise it, in line with the prevailing market characteristics and consumer behaviour.

• Start out small – walk before you run and allow yourself to make your mistakes when you’re small so that you can get organised for success as you eventually grow
• Focus on a smaller market, so it will give you more precise targeting options and better chances to achieve greater ROI on your investments
• Create important partnerships early on that will create more opportunities down the road.

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2. Partner/Co-founder

It’s important for a startup founder to evaluate the products/solution with regard to the target market and if the energy, calibre and mind-set of peers joining it matches yours. Merely being friends or knowing each other socially wouldn’t help. The actual test begins when the going gets tough and challenges surmount beyond control.

It’s a well-documented fact that partnerships fail often and businesses crumble due to infighting between the co-founders for various reasons. Founders’ discord is attributed to about 23 percent of business failures, as per the KPMG report.

It’s important to have a written founders’ agreement or directors’ agreement note, duly signed and if possible even notarised, clearly defining roles and responsibilities divided between.

From my observations, there are several friction points, and in my opinion 60 to 70 percent startups fail because the founders couldn’t stick together.

A founders’ agreement is a legally binding contract, usually in writing, that outlines the roles, rights, and responsibilities of each owner in a business. It could be a standalone document, or it could be incorporated into corporate bylaws, an LLC operating agreement, or partnership agreement. It is designed to protect each founder’s interests and to prevent conflict down the line.

Here are some of the reasons why having a founders’ agreement is essential:

• Clarifies each owner’s role in the business
• Provides a structure for resolving disputes among founders
• Provides clarity if and when a partner wants to enter or exit the business
• Protects minority owners
• Signals to investors that you have a serious business

What should the co-founder’s agreement document comprise of -

1. Each co-founder’s roles and responsibilities
2. Equity breakdowns
3. Intellectual property
4. Salary and compensation
5. Exit clauses
6. Contractual communications and dispute resolution

Visiting and consulting with the corporate lawyer helps drafting the same to make it a legal document but only after the co-founders sign on it within a timeframe, after reviewing it considerably and having the hard talking, in between.

3. Bootstrap

Every business needs a minimum amount of required money to start with. Ideally, a minimum of one year and a maximum of two years, money should be kept in hand to operate without external borrowings.

Optimum utilisation of minimum resources and ‘cutting the coat according to the clothes’ helps managing business affairs and daily operations. Flamboyancy and over indulgence should be avoided at all costs at the beginning, at least till decent traction happens and revenue generated regularly.

What do Microsoft, Apple, HP and Amazon have in common? All four of them began in the garages of their founders. Silicon Valley is full of stories of technology giants with such humble beginnings. Facebook’s Mark Zuckerberg first set out to turn his dorm room project into a lasting business. And near home, Infosys had started from a garage and Flipkart from a small 2-BHK rented apartment.

• Cost control is the practice of identifying and reducing business expenses to increase profits, and it starts with the budgeting process.
• Cost control is an important factor in maintaining and growing profitability.
• Outsourcing is a common method to control costs because many businesses find it cheaper to pay a third party to perform a task than to take on the work within the company.

Controlling costs is one way to plan for a target net income, which is computed using the following formula:

• Sales - fixed costs - variable costs = target net income

A minimum of three years to five years’ budget and business plan helps in not just controlled planning but it’s financially prudent to have such clarity at the beginning, which should be reviewed periodically to follow on the expenses while striving to enhance income.

4. Business model and plan

Every business idea, in order to succeed in the target market must devise a suitable business model with strategies and thoughtful plans. The same needs to be well documented with relevant supportive inputs in spread-sheets, excel sheets and in PPT formats.

It is necessary for you to communicate your ideas and the devised business models to your target audience for clarity and conviction, influencing them in your favour, inducing to pay for using them.

But in world of high competition and information overload, one has to identify your plan’s USP to differentiate and sustain. Therefore, besides the customary metrics and relevant figures, your narrative must project a stronger storyline that attracts the undivided attention of the market, helping you earn your revenue and continue the business flow, unhindered.

And this differentiating factor has to be identified both in your ideas and the business model. Ideas need to be monetised. However, flexibility and alternate options need to be kept ready always to address any eventuality and in the changed market dynamics.

There have been several instances of good businesses folding up prematurely. On closer examination, we get to know these factors influencing their fate as far as the business model is concerned:

1. Ideas imposed upon a non-existent market
2. Run-of-the-mill ideas or cloning existing ones
3. Unable to keep pace with the changing market dynamics and changing demands, in the absence of a Plan-B ready

At times, founders get obsessed with their ideas and stay rigid even in the face of market resistances or when the market dynamics change. Unless in tune with the market demands, your business model will falter mid-way, hence keeping pace with the changing times will help sustain in the long run.

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5. Traction

Your venture will succeed only when you will be able to get your target audience paying you for your solutions, products and services. Revenue generation and making profits are the key drivers.

Traction depends on your go-to-market strategy and marketing efforts. Hence, it’s imperative to understand what triggers traction and what sustains it along the way.

6. Funding and Investor's Deck

Startups frequently prepare a pitch deck to present their company to prospective angel or venture capital investors. The pitch deck typically consists of not more than a minimum of five to a maximum of ten slides in a powerpoint (PPT) presentation, intended to showcase the company's products, technology, and team to the investors, and the reason the company is seeking the required funding.

Ideally, the investor pitch deck should follow the following and shouldn’t take more than 10 minutes to present.

Slide1: 3-4 liner summary about your startup

Slide2: pain point, market gaps

Slide3: solutions on offer

Slide4: traction and clients

Slide5: core team

Slide6: funding request and equity offer

For back-up, spread-sheets and excel sheets should be kept ready in detail, especially elaborating on the financials, the minimum three years’ Balance Sheet and Projections, and a clear roadmap.

Remember, the primary objective of the Investors is to:

1. Get to know the core team, understand your capabilities
2. See clarity in thoughts and confidence to drive business
3. See that there are clear long term plans
4. Know more about technology integration and improvement

Hence, your pitch deck slides should only reflect on these themes to create strong interest and further curiosity at the first meeting. Never try to close the deal in this meeting. It will be considered positive only when the investors ask you for a second meeting soon.

In fact, the first three slides are the deciding factors hence; your pitch should care for this. It’s a gross error to pack in too much information with too many slides. That’s overkilling.

Two major drivers determine whether you will be successful in raising money successfully - your team and your idea. Of course, incredible growth rate would easily attract investors, but that’s not always the case with all startups.

Product and Business Strategy

A great idea/product/solution does not ensure success. You can have the best of products but if it is not marketed well, and positioned in the market properly with necessary PR and branding, it may not sustain for long, especially in the face of tough competition.

Business strategy is very important. This calls for complete understanding of your product/solutions/services, and also that of the target market.

A most important factor is product positioning and branding. Let’s take the case of Tata Nano, the revolutionary people’s car that created huge buzz across the world and was priced just right to suit the smaller pockets of the target market - middle-class Indians dreaming of graduating from two-wheelers to four-wheelers, notwithstanding the no-frill option.

After all, a car is a car for such a person, no matter what size and facilities it may offer. The automobile world was amused yet excited and the initial responses were akin to the opening of a super star’s blockbuster. But, where is Nano today? Why did it fail abruptly, belying all plans and support?

If we put aside other reasons like technical issues, production delays and the likes, which were also true, one issue that stood out and needs sincere consideration is -

• Product positioning – omissions and commissions

The automaker was under the misconception that a low price would be enough to motivate people to buy the Nano. They did not account for their positioning it as a cheap vehicle which, in India's markets, translates to low quality. So, bad marketing strategy was perhaps the key reason for Tata Nano's failure.

Marketing, PR & Branding

Having a product isn’t just about your latest launch or achievement plan, it’s about delivering a message to the world about what you’ve accomplished or planning to do. Any product, popular or not, doesn’t guarantee success, on its own. It has to be worked on. Well calibrated publicity is the key to success and popularity.

Every business has three distinct parts integral and important to it. They are - marketing, business development and sales, and of course, the all-important product itself.

Visibility is required in personal as well as professional lives. An organisation needs to communicate with their target market, and to the world in general. Public Relations (PR) and branding are very much a part of this.

Marketing is not just about the current buzz word- Digital Marketing. The right use of selective tools, staying engaged with the target audience, and focussing on addressing the need will all go a long way.

A word of caution though - excess of everything is bad. It is pertinent to draw the line somewhere, a boundary not to be breached.

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Conclusion

A few tips on avoiding pitfalls from my experience as an entrepreneur -

1. Have everything written down clearly before starting your venture, and document them properly. Spell out your Magnacarta and follow them sincerely, in letter and spirit, having the right checks and balances in place.
2. Being unable to have control over your activities and being overly dependent on others can become a weak point, inviting trouble in the long run. Try to be on top of your assigned job.
3. Men are complex creatures and wired to take control mostly. This often triggers conflicts, leading to possible showdowns and break down of relationships. Mutual respect is a must, and disagreements need to be professionally addressed with dignity and without emotions.
4. No man is perfect. Instead of magnifying one’s weaknesses and shortcomings, it’s better to utilise each other’s strengths, ignoring the negatives. In order to maintain team spirit and healthy camaraderie, synergies should be established, complementing each other’s strengths. Interpersonal relationships is very important for a healthy work atmosphere, and peaceful workplace. It’s about relationship management with mutual respect.
5. Focus should be on traction and early revenue generation. Cash inflow is a strong booster ingredient and your entrepreneurial journey hinges on it.
6. Your idea should be market driven, not sitting obsessed with it and holding onto even when the wheels start wobbling and stop moving. Flexibility in strategy and having a Plan-B ready in place helps moving over and staying afloat.

And finally, remember - failure is the pillar of success. When one door shuts, more open.

What if I fail?

Oh my darling, but what if you fly?