The Startup culture has seen exponential growth around the world in the last decade. Those in the startup world see it differently to other more traditional new businesses. To quote CEO and founder Neil Blumenthal, “A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed” (Forbes).
This culture of creativity and innovation is what makes the startup world so enticing. For the majority of startups, however, success can be elusive. Here we explore the ins and outs of beginning a startup and what you can do to ensure that yours is a success.
Startups are a growing trend
The annual Startup Muster report for 2019 estimates there are currently 1465 businesses in the startup phase in Australia, with 712 joining the market last year. Currently, artificial intelligence leads the way as the dominant industry for startups, at 20.6%, closely followed by financial technology at 18.1% and education at 14.7%.
As expected, advancements in technology are the driving force behind most startups, with 72.1% of founders crediting ‘identifying a compelling opportunity’ as a critical event behind starting their business (Startup Muster).
Should you be discouraged by high failure rates?
Ultimately, the vast majority of new businesses will not succeed, with research estimating that as high as 90% of all startups will fail(Failory). These stats have led to the term ‘unicorn’ being used to describe startups that reach the point of being valued at over $1 billion, their mythical status capturing the rarity of this achievement.
There are many different reasons why these businesses fail, ranging from a lack of investment to scaling up too quickly. However, one of the main reasons behind failure is that the company is providing an undesirable product. Up to 42% of entrepreneurs attributed their failure to a lack of market need – as opposed to only 29% who say they ran out of cash (Fortune). To become entrenched in the market, a startup must solve a problem in a way that is not only innovative but also appealing to customers. Before you start worrying about hiring, fundraising or marketing, make sure you have a product that people want.
The right ways to build a team
Having the right people around you can be crucial to the success of your business. A single person can make a difference, with startups founded in a partnership growing 3.6 times faster than those with a solo founder . Indeed, partnerships account for the biggest chunk of startups in Australia at 41.8%.
As you scale up, finding new people that share your vision can become critical to success. Keep in mind that you don’t employ people just for the startup phase, but ideally, build a core team to carry your idea as it grows. When struggling to find the right people consider looking beyond the traditional job listing sites to places like stemhub.com.au, LinkedIn, or a progressive recruiting agency.
Another possibility is outsourcing. It’s worth noting that almost 84% of startups outsourced work at least once in the past year, meaning many are seeking short term fixes to the issue of employment and team building.
Investors and financing tips
The first investor in a startup should be the person with the idea, and indeed founders provided 64.4% of funding for Australian startups last year, while family and friends contributed an additional 27.6% .
Aside from this, private equity in the form of venture capital or angel investors makes up the bulk of financing. Founders can accept money from an investor in return for a share of the equity in their company, providing an injection of cash and often gaining valuable mentoring and connections.
If a startup doesn’t want to dilute its equity early on or is struggling to find investors, they may turn to a practice known as bootstrapping; starting the business using a personal investment and then operating purely on any revenue brought in until more funding is found.
Government grants, tax rebates, crowdfunding and in rare cases, grants from accelerator programs are other options to consider when looking to raise capital for a startup.
To scale or not to scale
The ultimate aim of a startup is to not be a startup anymore, and managing this growth can be the trickiest part of the journey. It’s thought up to 70% of startups scale up too early, with the Start Up Genome Project estimating that this mistake could account for 90% of all startup failures .
The difficulty arises because there are no hard rules on when and how to scale your business. A good general rule to follow is to start growing once you’re certain that the cost spent to acquire a new customer (i.e. marketing, production costs, etc.) is less than the amount of revenue that customer will bring you.
I have a dream… but is that enough?
The startup world is fast-paced and rapidly changing. New ideas are constantly being suggested, debated and reworked, and success can often be hard to obtain. However, none of this should discourage you from chasing that one idea that excites you. Instead, would-be startup founders should study and learn from the mistakes of failed companies.
Make sure you have the right tools and proper planning in place before you start and give your game-changing idea the best chance of becoming a life-changing reality. A Diploma of Business (Leadership) (BSB50120), Leadership and Management (BSB50420) or Project Management (BSB50820) will give you the added skills and confidence to succeed.