Most Common Issues Facing Startups Today

At the Tandon Group, we’ve heard at least two startup investment pitches a week over the course of the last 40+ years. We’ve invested in promising startups and passed on countless pitches that didn’t convince us of likely success. In that time we’ve come to recognize common issues that many companies face. Our hope is that by divulging these issues future startup founders can avoid them.

Knowing what not to do can sometimes be just as important as knowing what to do. The issues we’re going to discuss are a major enemy to any startup’s success. In his classic The Art of War, Sun Tzu remarked, “If you know the enemy and know yourself you need not fear the results of a hundred battles.” As a startup founder, you’ll be forced to face hundreds of “battles” in the pursuit of growing your company. Remember this fact before you start and it’ll save you a lot of stress over the course of your career. If you can avoid the common issues outlined below, you too might build the next million (or billion) dollar company.

• Issue #1: Doesn’t solve a problem. By far, the number one mistake startups make is building a product or service nobody needs or wants. “Cool” and “quirky” ideas may be fun and even attract notoriety but if that same idea doesn’t solve a problem or make someone’s life better, the novelty will eventually wear off. All successful businesses either solve a problem, improve an existing solution, or create a new market all by themselves.
• Issue #2: Lack of sales. Some startup founders think that a large user base is all they need to be successful. Unfortunately, that isn’t true. While a large, million-person user base can result in a large startup valuation, it isn’t until the company finds a way to extract money out of users that the company produces a profit. Great startups always have an end-goal for producing revenue from their users. If you have an awesome product or service you deserve to charge for it in some way.
• Issue #3: Undercapitalization. This point is tied directly to the previous issue. A startup being undercapitalized (not enough money) is the direct result of not enough sales. If a company is always producing sales in excess of their lost customers they would never go out of business. Most startups need to solidify their revenue generation strategy before they try to expand further. We see this problem even in popular services like Soundcloud which, according to recent reports, only has enough cash to survive 50 days.
• Issue #4: No true leader. When multiple co-founders are involved in startup things can get tricky. Miscommunications, disagreements and large egos can all get in the way of running a successful business. Defining a single leader and true CEO is the only way to structure a company so that decisions (and progress) can be made. This can be one of the hardest conversations you need to have but it can also be the most beneficial.
• Issue #5: “Copycat” business. “We’re the next Facebook…” or “We have the same business model as…” are phrases used all too often in the startup world. If you define your business in terms of how it relates to another business, you don’t have a unique selling proposition. Why is your business different? Why are you unique? You need to be able to answer these questions without even thinking about it. The live-streaming app Meerkat was a perfect example of a company that raised a lot of money, wasn’t truly unique and ultimately went out of business.
• Issue #6: Poor customer service. The customer isn’t always right, but that doesn’t mean you should ignore them. The purpose of a business is to gain and keep paying customers. Some startup founders believe that customer service is somehow beneath them when, in fact, it’s one of the most important things they could be doing. Upset customers will tell you everything you need to fix, what they don’t like, and what you could improve in your product or service. Happy customers can provide invaluable testimonials that help sell your product to more people. Either way, you can’t ignore feedback.

If you’re able to successfully avoid these major pitfalls within your startup, your chances of success will dramatically increase. The Tandon Group is always interested in helping growing companies get to the next level. If you’re looking to raise capital for your business or expand your offerings within the Indian market please reach out to us. We’d love to learn more about your company and see how we can help.

Is Your Business Idea Feasible? A Checklist for Entrepreneurs

Do you watch Shark Tank? If you do, have you ever noticed when an aspiring entrepreneur pitches an idea and you think: “Hmmm, I don’t think that’s a very good idea.” And the next thing you know every shark is saying: “No Deal.” Well, if you’ve ever seen that, imagine how bad it must feel for the entrepreneur to hear those words. With that in mind, we’re going to show you a set of rules many VC firms use when considering an investment. How many check marks does your idea have?

1. Does Your Company Solve A Real Problem?

The greatest sin entrepreneurs make is inventing a solution before solving a problem. We get it, you have the hustle and persistence, but at the end of the day. Are you really helping your customers solve a tough problem? If you can answer with a resounding “yes” then you’re well on your way.

2. What Is Your WHY For Launching This Idea?

Another way to phrase this question is: are you capable of doing this business idea? Simon Sinek is an author who asks one simple question: “Why are you doing this?” The reason is simple. What is your motivation to launch this idea, and will it keep you going when “the going gets tough”? Here’s a sad reality, if you think entrepreneurship is easy then you have it completely wrong. Running a business can be harder than you imagine, and if you want to make it through those rough patches you need a why which deeply motivates you.

3. How Fast Can You Execute?

In the world of business, there’s a simple motto. Execute, Execute, Execute. VC’s need to know how quickly your idea can become a reality. Additionally, they have to trust that you have the chops for pivoting when needed and can make adjustments as the data comes pouring in. The questions to ask are: “Is this an R&D project which will need funding to get the technology just right? Is this idea easily tested by the marketplace? What resources will I need to get my first version going? How long will it take to get my first sale?”

4. Do You Have Competitors In The Market? If So, What Are They Doing?

Business Insider wrote a fascinating article back in 2010 about the overrated myth of “First Mover Advantage.” In the article, he said: “First Mover Advantage — Great Bad Idea” and “Fast Follower – A Better Idea.” In the article, he also cited a study that showed 47% of First Mover Businesses failed and only 8% of Fast Follower Businesses failed over the long term. Here’s why: if you have competitors the solution is validated because there are people who are already paying for that very solution! This is great news for you because now you have an addressable market to sell your product. However there is a caveat, you need to know everything about your competitors because you’ll need to carve out a niche for your business to be successful.

5. Can The Business Be Described Simply?

If you need 2 hours and 100 slides to explain your business idea to somebody then your idea is too complex. People thrive on simplicity, and like the famous quote goes: “If you cannot explain it simply, you don’t understand it well enough.” The rule of thumb is this: If you were in a stadium crowd of your perfect customer audience, what would your businesses headline be to grab their attention? Normally this means concentrating the idea into 25 words or less, breaking it down to its bare essentials. If this is next to impossible for you, it may reveal a fatal flaw in the idea.

6. How Quickly Can You Monetize This Idea?

It’s interesting that the above question isn’t asked by many new entrepreneurs, but it’s the one every venture capitalist investor is thinking about. How quickly will I see my money back? This is where you need to get technical and deeply think through this problem. It’s important to have an accurate runway of your business idea so you can convey to potential investors that choosing your idea is a win-win for all.

The Bottom Line

As an entrepreneur, your dreams probably reach well over the $1 billion mark, and we hope it happens! However, remember that proper planning could mean the difference between a successful business, and an embarrassing failure. Use the above checklist to exponentially increase your chances of hitting a homerun! If you’re working towards being an influential entrepreneur then contact The Tandon Group. We’ve invested in the dozens of high-growth startups in the wireless, consumer, defense, and information technology sectors, across the globe. We’ve had successful exits and helped grow companies to millions of users, and you could be the next shining star.

Your Startup Will Probably Fail and That’s Okay

You’ve probably heard the saying that “90% of startups fail.” Well, after tracking over 27,000 startups over 20 years, Cambridge Associates says that the amount of startups who provided less than a 1x return to investors has not risen above 60%, on average. The failure rate peaked around 2000 and the failure rate topped out around 79%. Either way you look at it, even at its worst, the startup failure rate was never more than 80%.

So why do people keep repeating the “conventional wisdom” that 9 out of 10 new businesses fail? It may be to lessen the blow when new startups inevitably do fail, it may be because people actually haven’t looked into the numbers, or it may be to discourage people from taking risk. Regardless, the fact remains, if you start a company the odds are against you. On a purely statistical average, there’s a 60% chance that your company is going to provide less of a return than any amount of money put into it.

Top reasons why startups fail

If you read our previous blog post- common issues we see in startups today – you’ll see that the top 6 most common causes for failure are:

1. Your product or service doesn’t solve a problem or address a real need
2. You are unable to sell your product or service
3. You don’t have enough money to expand and grow your business
4. You have no true leader to shape the vision of your company
5. There’s no differentiation between you and your competitors
6. You don’t care enough about the customer experience or customer service

Almost all of the reasons that a startup fails can be categorized into one of those 6 issues. It can be very difficult for a first-time entrepreneur to avoid these common pitfalls because most people do not truly learn something until they experience it firsthand.

REAL reason startups fail

Almost all of the problems we listed above arise from lack of experience. That doesn’t mean that first time entrepreneurs can’t be successful. It simply means that it’s hard to foresee all the potential troubles that lie ahead until you’ve been there before. Experienced entrepreneurs anticipate running into these problems and proactively build their organization to overcome them.

There are two ways to overcome a lack of experience. The first is to simply go directly into business and learn along the way, anticipating inevitable failures. Most failure is not permanent or catastrophic and therefore, can be learnt from. The second way, to make up for lack of experience, is to learn from others. Build a team of experienced people around you that can help you navigate the complicated start up process.

Why failure isn’t the “end of the world”

Failure is never permanent unless you quit. An entrepreneur can always try again. As long as you are ethical and moral, people will not negatively judge you for an earnest attempt. If you tried your best and failed, try again. As long as you keep your reputation intact, there’s no need to fear failure.

Entrepreneurs who failed but tried again and succeeded

There are countless entrepreneurs who failed multiple times before they succeeded. In fact, the majority of great entrepreneurs fail before they meet with success. We think it might be helpful here to highlight some of the more obvious examples of entrepreneurs who failed but got up, tried again, and built a successful company.

Jeff Bezos (Amazon) tried to start an online auction site called zShops, which ultimately failed. Reid Hoffman (LinkedIn) created a company called SocialNet, for online dating and social networking, which ultimately shut down. Evan Williams (Twitter) developed a podcast platform called Odeo which didn’t take off. Fred Smith (FedEx) received a poor grade on an assignment from his college professor where he pitched his idea for the future shipping giant.

All of these entrepreneurs have one thing in common, they didn’t give up. No matter what, even if you’re first companies fail, if you try again, you still have the chance to be wildly successful. Our hope is that failure doesn’t keep you out of the game -of entrepreneurship- for the rest of your life.

Are you the type of person that never gives up?

At the Tandon Group we are always looking for entrepreneurs who refused to quit. If you have a company that you think can be the next big success, reach out to us. We’ve invested in dozens of startups across many sectors that have seen success. You can check out our portfolio of companies on our website and read some of their spotlight articles on our blog. If you need capital to grow your company, we’d love to be your partner for the road ahead.

Is the Indian Tech Bubble Going to Burst?

It’s been almost 20 years since the infamous “tech bubble crash” of Silicon Valley. In the late 1990s, companies were raising hundreds of millions of dollars before ever turning a profit and it seemed that every week a new tech stock was going public. In those periods of hyper-growth, when the capital was easy to acquire, the only focus seemed to be acquiring new users. Founders forgot that at some point they had to turn those users into revenue.

In recent years, as more and more Indian consumers adopt mobile technology, (and gain access to the internet) Indian entrepreneurship has seen exponential growth. With near-zero interest rates in the United States, a heavy inflow of available capital has been seen in the Indian startup scene. Some economist thinks that this is a sign that India is undergoing the same sort of tech bubble the United States went through in the early 2000s. In this post, we’ll discuss whether or not India is in a bubble situation.

Why do bubbles happen?

In simple terms, “bubbles” happen because overvalued startups focus on growth over revenue. The market eventually catches up, realizes that these companies are vastly overvalued, and stock market corrections force the value of these companies to plummet.

One major difference between the United States tech bubble of the early 2000s and the current Indian startup ecosystem is that many of the American tech companies were in the public sector while the majority of the Indian startups are private companies. This makes it harder for markets to accurately gauge the value of a company because there are no regulatory requirements to publish company financial information. That being said, we can still look at private companies, compare them to the market they serve and see very troubling signs of overvaluation.

Signs of a bubble in India

One example of a potential overvalued startup is Flipkart. Flipkart is similar to Amazon and Snapdeal in the fact that it is an e-commerce platform. As of last year, Flipkart had approximately 45% market share of the e-commerce industry in India. The overall value of the entire e-commerce industry in India is approximately $15 billion. Flipkart was recently valued at $15 billion dollars. You can see the obvious problem here. Flipkart only holds a 45% market share but is valued at the same amount as the entire e-commerce industry. How is this possible? Companies like this are either overvalued or convincing investors of future value they have yet to realize. The valuation estimates could simply be wrong as well.

Fear of Missing Out

Another contributing factor to the potential overvalued startup landscape in India is something that all humans face, the fear of missing out (FOMO). FOMO is inherent in almost all human beings. We don’t want to watch someone else do something fun, exciting, and amazing, and not participate in it ourselves. The startup frenzy in the United States from the mid-1990s until now has shown the rest of the world the power behind technology and the way it will affect the entire world in the coming decades.

While the United States got to experience the internet in its dial-up form, where a telephone landline was required, much of the developing world completely skipped landlines. With the emergence of strong mobile technology, consumers in all areas of the world can now have access to the Internet without the expensive infrastructure that was needed 20 years ago. This transition is manifesting itself everywhere, especially in the fact that India will see more people come online in the next 10 to 15 years than any other country. As we said before, most of this growth is not coming from urban areas but in rural areas, where the infrastructure simply did not exist before.

Public Consensus

In a Youth Survey by HT and MaRS, 20.8% of men and 21.2% of women say Indian startups are in a bubble that’s going to burst. While this isn’t a majority, that still means that one out of 5 Indian consumers believe that large tech company valuations will soon be declining. Let’s take a look at what start-up company executives think themselves Nearly 65% of startup executives and founders believe that Indian startups are in a technology bubble and 18% of them feel that the bubble is close to bursting. [1]

Fund Raising

Last year, 94% of startups looked to raise outside funding. What does this mean for the future of startups in India? Well, for starters, this means that company founders look at internal organic growth as a non-viable option for building their company. While angel investors and venture capitalists can certainly expedite the growth of a startup, companies like Zoho prove that building successful companies does not require outside investment. [2]

Taking on outside investments often means spending money on things that don’t really matter. While it can be nice to have company t-shirts, branded merchandise, fancy offices, free lunch, free events, and all other sorts of company perks, none of these things actually makes your product or service any better.

Conclusion

A tech bubble bursting in India isn’t going to send shock waves through the economy worldwide, like that of the US in the early 2000s. Many companies made it through the crash and are now global superpowers that lead to technological innovation. At the Tandon Group, we believe the same thing will happen in India. Companies that are not truly worth what investors are paying will eventually come to realize their true value while great companies will grow and prosper regardless.

At the Tandon Group we’ve invested in dozens of startups we think are poised to meet with success in the coming years. That being said, we are always on the lookout for the next great, innovative company. If you think that your startup can be the next great success, reach out to us. We’d love to be your partner for the road ahead.

eComparison: US vs. Indian Startup Ecosystem

The Indian startup ecosystem has grown into the third-largest startup landscape in the world. While the US is still the startup capital of the world, the Indian market has experienced many parallels with its American counterpart. The numbers we’ll discuss in this comparison post will be between 2015 and 2016. These numbers usually increase each year so we expect them to increase this year and next year as well.

Below, we’ll lay out some facts and figures that compare the United States and India to see where they’re alike and where they differ:

Population: India and the United States represent the second and third most populous countries on Earth. Trailing behind China, India and the US rank second and third respectively. India has a population of 1.19 billion and the United States is a distant third with 311.1 million people. This means that India has approximately 4x as many people as the United States. This will be an interesting fact to keep in mind as we get into the comparison of startups between the two countries.

Number of startups: As of 2015, the United States had approximately 10 times as many startups as India. The US came in at approximately 47,500 startups while India came in around 4,300. Based on population sizes, that means for every one Indian startup there were 300,698 people. In the US, for every startup, there are approximately 6,758 people.

Number of investors: The two types of investors we’ll look at are Angel Investors and Venture capitalists. The number of Angel Investors in India was only approximately 300 while the number of Angel Investors in the United States was over 300,000. The number of  Venture capitalists in India was ~156 with total VC funding of approximately $6.5 billion. In the US, there over 1,300 venture capitalists with over $47.3 billion invested.

Incubators, accelerators, and coworking spaces: India is also 3rd overall in the number of startup incubators and accelerators, after China and the US. As of last year, India had 140 incubators and accelerators putting it just past Israel. This still leaves India a distant third behind China and the US. The United States has approximately 1,500 incubators and accelerators.

Unicorns: A “unicorn” is a startup with a valuation of 1 billion dollars or more. This valuation either comes from relative value compared to prior investments (post-money valuation) or market capitalization (public market stock value). India had only 10 unicorn companies (though nearly one-sixth of the world population lives in India) – the US had 98 unicorns (with 4x fewer people).

Government Regulation: India’s rank in the World Bank’s Ease of Doing Business Index 2017 is 130, out of 189 countries. A look into specifics paints a grim picture: India ranks 155 in the ease of starting a business, with an average of 14 procedures in Mumbai, when the average is 4.8. The US’ performance is better, with a rank of 51, and an average of 6 procedures to start a business.

Taxes: Marginal corporate tax rates for India and the United States are 38.6% and 38.9%, respectively. The United States ranks third in the world for the highest marginal tax rate trailing only United Arab Emirates (55%) and Puerto Rico (39%). India ranks 12th in the world and 2nd in Asia, after the United Arab Emirates.

If you’re a startup in the United States or India and you’re looking to find a venture capitalist partner, the Tandon group is interested in helping. At the Tandon Group, we have over 40 years of experience investing in technology startups and growing them into multimillion-dollar enterprises. If you’d like to set up a potential investment meeting, reach out to us on our website. We look forward to being your partner for the road ahead.