Startups are the term used to describe companies founded on the basis of innovative business ideas with great growth potential. With the dream of developing the next Twitter, Skype or Instagram in the back of their minds, numerous new start-ups spring up year after year. But the majority of start-ups fail, many do not even survive the first year. Yet many mistakes can be avoided quite easily.
From the idea to the business plan – what you should think about in advance
To avoid a similar fate with your start-up, you should think about your business model and the general conditions in advance. A carefully prepared business plan provides both you and potential investors with an overview of the opportunities and risks of the start-up. When developing your product, you should check the market situation for potential demand for your product. In doing so, the Blue Ocean method is proven to look for the right niche for your product.
If possible, you should not found a start-up alone, but in a team with at least one partner. Ideally, you should complement each other in your competences. For example, if you are a computer scientist, you should look for a partner with business expertise, or vice versa. You should also make sure that your employees form a homogeneous team with interdisciplinary expertise.
You should also question the scalability of your business model. Will it still work just as well with ten, 100 or a million customers or will there be problems at some point? This question can become important later if you want to expand abroad with your start-up. You should also clarify the question of financing your start-up in advance if possible.
How to create the financial basis for your start-up’s success
Sooner or later, every start-up has to think about financing. According to the “Startup Monitor”, half of the German startups required €50,000 or more in capital when they were founded. Only 19% of the start-ups cited banks as an important financing partner. The most common financing methods are as follows:
Venture capital: Investors acquire shares in the company and thus also a say in future decisions. In addition, venture capitalists bring their experience and economic expertise to the company. Since the investment is associated with risks, many investors demand rapid growth of the company.
Bootstrapping: Bootstrapping is a method of financing without outside capital. The start-up is thus financed from its own cash flow. This method creates financial independence, but also requires efficient management of the usually scarce resources.
Business angels: These are wealthy entrepreneurs who expect a high return from investing in a promising start-up. In addition, they usually have a large network of contacts, business know-how and often personal experience with their own start-ups, which they bring into the day-to-day business.
Crowdfunding: An increasingly popular method of financing start-ups is so-called crowdfunding. The basic idea here is financing by as large a mass of individuals as possible. On a corresponding platform on the internet, you have the opportunity to present the idea behind your start-up and determine the financing requirements. If the pre-determined sum is reached with the help of the individual donations, you receive the capital and the donors receive pre-determined consideration in material or immaterial form.
In order to make a good impression on potential capital providers, you should be able to show a carefully elaborated business model and present it in an appealing way, for example in the form of a Business Model Canvas. Always make sure to honestly show potential investors the opportunities and risks and remain realistic in your forecasts.
Consistent growth leads to success
Long-term research by CB Insights has shown that one of the most common reasons for the failure of start-ups is so-called premature scaling. In premature scaling, growth is artificially pushed without having the corresponding demand or a finished product. The result is that individual areas of the start-up develop faster than others, creating inconsistencies that lead to inefficiency. So resist the temptation to artificially accelerate your company’s growth. In the long run, your startup will benefit from natural growth.
Stay flexible in the development of your product and adapt your ideas to the needs of the customers, even if you have to throw cherished ideas overboard in the process. A suitable method that has become established in the past is called Lean Startup. Here, a business idea is tested under market conditions according to the principle Build – Measure – Learn and adapted according to customer feedback. Such an approach can be planned and realised with a product canvas, for example.
Failure as an opportunity – Why you should not bury your head in the sand after failure
If you fail with your start-up despite good preparation, this is not necessarily a reason not to try again with a new idea. In the US in particular, failure is seen as an opportunity to do better next time, whereas in Germany failure is perceived far more negatively.
In the past, it has been shown that start-ups that adapt flexibly to changing market conditions and rely on the help of mentors and exchange with others are more successful than those that do not. Therefore, do not shy away from the exchange with other founders. Because why should you repeat mistakes that others have already made?
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