I’ve been reviewing various pieces on the most common reasons for failure in start-ups. There seem to be three core reasons why start-ups – and many other businesses – run out of cash:
Market – Many businesses fail by not having a product that squarely addresses the needs of a sufficiently large market in a sufficiently compelling fashion. Contrary to the old saw, it is not enough to simply build the world’s best mouse-trap. “Best” is subjective enough but if your trap costs 100 times as much to build as existing mousetraps, the market may not value that difference. If your mousetrap works by irradiating stray mice or by following lone mice back home and brutally slaughtering the whole mouse family, the market may get squeamish. And anyway, how many people buy mousetraps these days? Market failures are all about not matching the product to the market.
Model – Many businesses simply fail to work out how their super-cool new product or service will make money. Will people pay what you need them to pay to make a profit? How much does it cost to acquire customers? How does that compare with the lifetime value of those customers? Can you acquire enough paying customers to pay for the service you are building (and maintaining)? Business model failures stem from not thinking deeply enough about how this thing will make money. And even if the game-plan is to get bought out by Google or Facebook, you need to know how, eventually, your model can make money.
Management – Finally, many businesses fail because they lack the breadth or depth of management skills required to guide their baby from the kitchen table to making the first million. That can be a failure of business know-how, a failure to recognise and plug gaps in knowledge or simply a failure in necessary tenacity.
And, of course, the above applies equally to the budding freelancer or Sovereign Professional. You may want to follow your heart, but do enough people want to purchase your heart’s desire?
Three common problems. Enough to make you go, mmm.