Startups Must Read: How To Avoid Failure

It’s a well-known fact that many startups fail because they don’t generate the revenue stream they need to maintain the business. When optimism isn’t enough and costs keep rising, failure is imminent.
However, what’s not as highly publicized is how aspiring entrepreneurs can avoid becoming one of those 3 out of 4 startups that fail, according to Venture Capital. Many startups are actually doomed right out the gate because of some of the things we’ll discuss here. Before you jump into the exciting world of entrepreneurship, read this post.

Create a Business Plan

Having a detailed business plan that outlines every element of your business will significantly increase your chance of success. A business plan is an official document (a rather lengthy one) that outlines every aspect of your business. Your business plan should contain:

- Executive Summary

- Competitive Analysis

- Marketing Plan

- Pricing Strategy

- Company Analysis

- Financials

Basically anything that has to do with your company should be in your business plan. After writing out your business plan you may come to realize that the business will not even be profitable. It’s much better to discover this before you invest your savings into a failing startup.

Be Practical 

 

An issue that a lot of startups run into is their inability to think practically. Setting your goals high and having ambition are two key factors any entrepreneurs should have. However, when it comes time to execute, you may have to scale down a bit work up to your ideal situation. For example, you may set a goal to reach x amount of revenue in your first year. But what you fail to do is take into account the amount of effort and money needed to reach that mark. Before you know it you’ve exhausted all of your resources trying to attain an unpractical goal.

Understand CAC and LTV

The golden rule of building a sustainable business is that your Customer Acquisition Cost (CAC) must be lower than the customer’s Lifetime Value (LTV). Failing to grasp this concept can lead a startup to believe they’re making more money than they actually are. Here is how you calculate both of these metrics:

- CAC: Add up all of the costs related to getting new customers (advertising, traveling, salaries,  generating leads etc.) and divide that by your total amount of new customers during the specified time period (typically done per quarter). This will show you the average amount you’re spending to get each customer.

- LTV: A simple formula will help you calculate the LTV of your customers. [Average sale income]x[Number of repeat transactions]x[Average amount of time you retain a customer in months or years]. This formula can become a bit complicated if you’re offering multiple items with significantly different costs, but the same general concept applies.  

Understand Marketing

No matter how great of a product or service you provide, it won’t sell if nobody knows about it. A lack of marketing skills has landed many startups in that 75% mentioned earlier. Come up with a detailed marketing plan that outlines:

- Who your target customers are (demographics)

- The marketing avenues you plan to use

- How much you will spend on marketing

Choose the Right Business Model

Picking a profitable business model is also very important. With the popularity of online companies, many startups are opting for a subscription model where customers pay-as-they-go with Software as a service (Saas). It’s become very popular because it helps setup long term income and is scalable. In addition, they’re also fairly easy to start. With Saas payment processors, setting up the actual subscription management is easy so all you really have to focus on is developing great software and growing your business. Whatever business model you use, make sure it works for what you’re selling and you’ll reduce the chance of failure.

Author Bio:

Preciouse Gross is the Community Manager at BlueSnap, an international payment solution. Preciouse has been working in the e-commerce payment industry for 6 years helping to develop strategies to increase consumer engagement and interaction.