Believe it or not, all of us are pampered these days with the advent of on-demand startups. We never realized that the last two decade changed the world so much. In fact, these days we are used to getting everything we want with just a push of a button. All thanks to on-demand startups, we can get everything, everywhere and anytime.
As per the insights of Crunchbase, the topmost reason for the on-demand startups to fail wasn’t the cash. As a matter of fact, today most entrepreneurs run behind VC or investors to raise funding with a motive to accelerate the business. Not to mention the topmost reason behind the failure of thousands of startups is no market need. In 2017, 49% of startups shut down that begins with an aim to disrupt the market. Actually, these startups are in the market thinking they will change the way market work, but they weren’t needed at all. In fact, 55% of failed startups had funding. To put it differently, funding isn’t the utmost reason behind the success and failure of on-demand startups.
Low market demand and still competition slowed the growth of around 50% of startups as per the Nasscom chart. That’s the main reason, despite raising million of funding, startups fail to generate profit and scale up the business. Crunchbase insights reports say that “Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by failed startups. Running out of cash was often tied to other reasons for startup failure into a product-market fit and failed pivots.”
Some of the rules that every entrepreneur must follow to stop shutting down their on-demand business are:
1. CAC must not be greater or equal to LTV
Startups first aim is to acquire customers before considering the Lifetime Value of Customer. Calculating LTV isn’t as simple as it seems to be. In fact, it depends on the business model. For businesses with one time fees, calculating LTV isn’t a big deal. For businesses that have recurring subscription revenue, LTV is computed by taking the monthly recurring revenue (MRR). Further MRR is divided by monthly churn rate. The basic concept is to spend less amount on customer acquisition than the value of the customer in their lifetime. For being capital efficient, CAC must be recovered within 12 months.
2. Research your industry before it’s too late
Every startup goes through the ideation stage before entering the market. Spend more time on the ideation stage and research what market needs are. In the ideation stage, the entrepreneur must be convinced to disrupt the industry with their product or services. It’s difficult to change the business at a later stage and will include more efforts and money. Release or launching time is also very important. The demand for your product or service depends on the time of launch and targeted market. If you launch a car with no air conditioning feature in hot climate markets, it would definitely fail. Engaging with the targeted audience will help you gather better insights for product or service.
3. Flowing cash like water
For startups to succeed, managing cash flows are as essential as managing the team. Startups must keep cash reserves for unpredictable expenses and should pay the pending bills immediately. In short, good cash management speaks about an entrepreneurs understanding of business. Balanced cash flows allow entrepreneurs to allocate cash to more productive business operations which have more potential to expand the business into new markets and to acquire new customers.
4. Networking trap
Every entrepreneur or person in startups always says that networking is the most important to succeed. Making connections isn’t the task but using the connection at the right time is the game to play. Most of the entrepreneurs often groan about the lack of networks and connect with investors. As a matter of fact, most of them don’t use networks at the right time. Most of the startups failed even after getting investments from the best investors. Usually, the perception is to get cash from investors to accelerate growth. Investors know the insights of the market and invest in the business with a belief to get better returns. Discussing with investors will surely help to make intelligent decisions for the business that has fewer chances to fail.
Keep your ego aside and stop thinking of leaving 9 to 5 job for a comfortable life like a boss. It is actually totally opposite, you will be working 365 days a year day and night irrespective of your presence in the office. More than money, reputation is on the risk. Before starting any business, ask yourself a question: Are you ready to compromise on everything to excel?