Several months ago, Donatas Jonikas from Lithuania (more about him at the end of the article) approached us with a request to support his startup survey. His aim was to attract at least 1,000 startups. He managed, and in the near future, he is going to publish a book based on the survey called Startup Evolution Curve. For now, he has decided to write an exclusive guestblog for Slovak STARTUP based on his survey. Hope you will enjoy it and find some useful advice for you own project.
Please, welcome Donatas.
Are you running a startup or considering doing that in the nearest future? There are plenty of tips and advice on how to do develop your startup. Countless events take place where startup founders enjoy the community spirit, have fun and, if lucky, take a chance to pitch their idea to potential investors. But why so many startups still fail? More than 98% of startups never become a profitable and scalable business. Why?
I’ve been in strategic and practical marketing for more than 10 years and noticed some common mistakes most early stage startups make. Therefore, I’ve decided to write a step by step marketing manual on how to build profitable and scalable business starting just from idea. In order for the book to be more useful in practice, I’ve decided to run a large scale research. Thus, I’ve surveyed more than 1,500 startups worldwide and did more than 300 in-depth interviews with startup founders, one on one. I was looking for success factors and valuable lessons to be learned. But in addition, I’ve found too many mistakes made one after another in startup marketing. I feel it’s my duty to share the most common and most costly of them.
That’s one of the most common and expensive mistakes startups can make. Who wants to create a product nobody buys? Probably none of startup founders. But why are there so many startups which invest time, money and effort in products without having a clue whether customers will buy them? Quite many startups, especially in the tech industry, think that the hardest part is to create an innovative product, to “make things work”. If you think that the main success factor is to create a product, then you are following the business orientation which was popular and very effective in the 1960s. Do you really think it’s still valid in the 21st century and especially for startups?
It’s good to have a strong focus on product innovation, but don’t forget that you have to create products which will be loved and used by customers, not you.
Many startup founders focus on creating products that solve a particular problem which is important for them but not necessarily for customers. If the problem you are trying to solve is not really painful for customers or the value you try to create is not essential but just “nice to have”, the success chances of your startup are very low.
First of all, it will be much harder to sell such products, especially when customer’s financial situation gets worse – your product, if it’s just “nice to have”, won’t be in the customer’s priority list. Secondly, the price and your profit margin strongly depend on the perceived value (the more valuable a product seems to be to a customer, the higher the price they are ready to pay). So you definitely want to focus on creating essential value and solving painful problems.
This is highly related to the so-called “nice to have” mistake. A fact is that even though 42.6% of startups try to address really serious problems and create tremendous value, they don’t test it in the market or they do it in a wrong way. It would probably be hard to find a startup which hasn’t heard about market verification – validating their business idea in the real market. But by far not all of them know how to do it in practice.
Don’t ask your customers to answer a survey to get market verification. Offer them to buy or at least pre-order your product. If customers say your product is great, that it solves meaningful problem for them and gives great value, but… still don’t buy it, guess what? Saying is not the same as paying money! You’ll never have real market verification until customers give you their money for your product.
It’s some kind of disease, I don’t know how to call it otherwise. Startups too often try to make a show while pitching their business idea to investors instead of proving their business concept and growth potential. Sadly, some investors foster such attitude by highly evaluating exciting pitches without a solid foundation and marketing background. Just because the startup founder was so charismatic and made a great show during the pitch. Other startups notice that and next time will focus more on their pitch and show rather than verifying their business model and proving its durability and scalability.
Trying to please potential investors has a reasonable justification: investors can bring money, network and solutions for particular issues. Yes, it’s true, but only if you have a valuable and verified solution. Customers, not investors, should be in the center of your startup’s radar. If the customer is happy and satisfied, many things follow automatically, including the investors standing at your door to provide you with the needed funding.
I don’t know why startups believe in such a fairy-tale. I’ve done research with more than 1,000 startups worldwide, yet I didn’t find even a single case in which there would be no competitors. Anyone who has at least the basics in marketing knows that there is direct and indirect competition. If your startup is developing an absolutely new product (some kind of innovation), it’s possible that you won’t have direct competitors for some time until you are copied. But if you are solving a real problem (and it should nearly always be the case), there’s got to be a way people handle this problem at the moment. This is your indirect competition. Customer’s decision to ignore the problem is your indirect competition as well! Why? Because then there is an alternative for the customer – not to buy your product.
In-depth interviews with startup founders showed that most of them conducted only a very sketchy feasibility study. Only 33.9% of startups have evaluated their business micro- and macro environment, while others didn’t even think about that and focused mainly on the market fit verification in the best case. It’s wiser to ask yourself, “How to find out with whom we are competing?” instead of thinking, “We have no competition.”
Really? Are you sure? Why should anyone recommend your service or product? What’s in it for them to do so? I don’t say people won’t recommend you to their friends if your product or service is great. But it’s very dangerous to rely on that. It is called “hope marketing”, which basically means we do nothing in essence but hope for the best. Is it wise to make bets on such a strategy?
There are at least three types of growth engines: viral, sticky and paid. The sooner you take actions to implement at least one of those engines, the faster your business will start growing with the help of other people.
Quite a large share of startups (67.4%) would most of all like to get help with business growth, so-called “growth hacking”. But the fact is that only 49.8% have found their problem–market fit. Basically, it means that nearly 1 in 5 startups is willing to waste its energy and resources on growth hacking without having prepared their own value proposition.
Another shocking aspect is that only 18.8% of startups have developed their up-sell and cross-sell strategies. It means that other 81.2% of startups have no idea what they will do with potential customers even if “growth hacking” succeeds. They are not yet prepared to sell more and basically will “leave money on the table”.
Majority of startups seek growth, but only a few of them have well prepared foundations to handle what growth hacking could bring them. Don’t waste energy on growth hacking until you’ve done your homework!
I agree that if you are targeting a large scale market, you’ll probably need a big budget for communicating your unique value proposition. But it’s not true that you can’t start efficient marketing without significant funds. Not all marketing measures and tools need big money. If you still think opposite, read some books and articles about guerrilla marketing.
As my research showed, 47.9% of startups were already in the market, but only 17.4% had a consistent marketing plan and only 39.4% had developed the brand and positioning. Crafting a positioning statement and creating a marketing plan requires effort, not money.
Any rational investor will check if there is traction before putting his money into a startup. Investors need a proof that a business model is viable and durable. How are you going to show it without taking any marketing actions? You are on the right track if you don’t want to spend huge money on marketing in the early stage. Plan and run marketing experiments to find problem-solution-market fit, validate communication and distribution channels, get some ideas about possible growth engines. Once you have that, prepare a comprehensive marketing plan with potential profit estimations and approach investors to ask for the budget you need to implement that brilliant marketing plan.
Wrong! That’s not efficient anymore! Big launches might be a strategy for traditional businesses, though for startups in most cases, it causes just failure: wasted money and insufficient sales. We could deeply discuss the highly increased advertising and media buzz, but let’s save our time. Startups introduce innovative products and services, thus, they have to do things that don’t scale at first: verify the market fit, acquire first clients (early adopters), create user evangelists, test communication channels and search for efficient growth engine. Yes, big launch might be a strategy for a startup as well, but only if you have done the previously mentioned tasks and much more. So don’t bet everything on a big launch and get some traction in advance.
Sounds crazy? Wonder who might do such a stupid thing? You’d be shocked how many startups burn investor’s money spending it on things that don’t add value for the startup. Yes, it might feel comfortable and safe paying yourself a salary from fundraised money. It might be cool to work in a nice office and attend greatest startup conferences and other events. But what’s in it for your startup? How does it help your business? One thing is definite – it increases your cash burn rate. The higher the cash burn rate the less time you have to create a profitable and scalable business.
Startup founders with entrepreneurial mindset achieve more, because they see the difference between fundraised and earned money. They don’t spend it on shiny things but invest in what builds value for the startup.
More findings and practical step by step advice will be published in the up-coming book Startup Evolution Curve: From Idea to Profitable and Scalable Business. It‘s already possible to download valuable templates from the book and save your spot to get this book almost for free during the pre-launch in November – December, 2016. Be among the first to find out best practices and most valuable lessons from more than 1,000 startups worldwide.
Dr. Donatas Jonikas is a Startup Marketing Expert and Author of Startup Evolution Curve. Donatas holds a doctoral degree in economics and has more than 10 years of experience in strategic marketing. He has developed and helped to implement marketing strategies for more than 50 companies in different countries: Baltic States, Ukraine, Germany, Great Britain, Switzerland, China, Mauritania and etc. He is an author of 3 practical marketing course books for university students, public speaker and mentor in various startup events.