Startups have been the buzzword for almost the entire last decade. Today more people than ever want to have their own startups. Startups created more than 3 million jobs in the United States in 2020. At a time when startups are more common than ever, there seems to be the most misinformation around. Much of this does not come from any malicious intent. Rather, there is too much noise in the startup world and many fail to get their basics right.
Today we will go through everything that startups need to know in 2022 to survive the onslaught of the market. We will be focusing on the core fundamentals instead of sensationalizing and overexaggerating the subject.
Startup idea and funding
Having a startup idea is one thing, and getting people to fund it is a completely different thing. Only 2 in every 5 startups are profitable. Many of these unprofitable startups usually lack the necessary persuasion skills to get funding. Getting funds is the most important concern for all early-stage startups. Many investors are not willing to invest in startups that do not generate revenue. On the other hand, many startups cannot actualize their ideas without a successful funding round. It is a dichotomy that affects all startups, no matter how successful they went on to become.
Getting funds is directly related to the quality of your pitch. Startups tend to invest a lot in product design and ideation, but end up ignoring their sales pitch. According to Forbes, the value of your pitch is among the three most important factors determining the success of your business in funding rounds.
Now that we have discussed the importance of pitch decks, let’s understand how to create an effective pitch for successful funding rounds.
A survey from Merix Studio reveals that 35% of founders have never made a pitch deck themselves. The gap between entrepreneurs and how they sell their idea is a big problem in the startup ecosystem. Many great ideas never get the due attention and funding only because the founders failed to sell them correctly.
One of the key challenges in creating good pitch decks is telling a story. If you have an idea that is worth the money, you need to spin a story around it for it to be more lucrative. Starbucks is a great example of weaving a story and an experience with a product. For pitch decks to be persuasive, it is very important to have a story and not just an idea.
The pitch deck must also clearly underline the problem statement and its solution. If the problem statement is not strong enough, it will not convince venture capitalists and angel investors. To precisely locate the problem statement, founders need to conduct intensive market research. It is only after surveying thousands of people across demographic groups that you can precisely identify the problem. With more clarity about the problem, you will also be better equipped to provide the solution.
Market research brings us to our next subject – product/idea validation.
Testing the validity of your product or idea
According to CB Insights, more than 40% of startups fail because their problem statement is not relevant in the real world. When you compare successful startups to unsuccessful ones, you can see that most startups that fail do not solve a real-world problem. Though the ideas may seem good on paper, the end result may not find the proper product-market fit.
To know whether an idea is solving any real problem or not, early-stage startups need to conduct intensive market surveys. Talking to the consumers is the best thing they can do to gauge the scope of their field. If many people identify with the same problem and do not yet have a ready solution to it, the problem deserves attention.
Making a solution available is one thing, but making it accessible is a different ball game. Many solutions either miss their target market or are not affordable/accessible to them. Understanding the consumer demographics is very important to find out how much scaling opportunity an idea has.
Once you figure out the validity of your problem statement, the next step is to launch a prototype.
As the adage goes, a picture says more than a thousand words. Similarly, a working prototype of your product or service would tell you more about your startup’s success than a thousand surveys and reports. Until you have a tangible product or service to test the market with, you cannot accurately predict whether it’ll be a success or not. Prototyping involves creating a working model of your ideal product or service. However, prototypes need not be perfect. The very aim of prototyping is to understand loopholes in the product or service and work towards improving them.
Prototypes also play a key role in making your pitch more effective. When investors have a live working model in front of them, they can better understand the nuances and the shortcomings of the project. Even if you don’t get funding, you will get some very solid feedback from VCs and angels who have years of experience in the startup ecosystem.
Most startups understand the importance of prototyping. In many ways, your prototype determines the difficulty of getting funds from investors. An efficient working model is often more effective than a detailed pitch deck. However, having a poorly developed prototype equally lowers your chances of getting funds and finding the correct position in the market.
Legal and regulatory requirements
Every jurisdiction has different rules when it comes to registering businesses and obtaining licenses. However, these rules are often complicated and require professional assistance. Investing in legal experts is a smart move for startups operating in highly monitored spaces, like fintech.
Completing and legal and regulatory ordeal can take weeks to months for an early-stage startup. On top of that, the process is not one-time. Many of the formalities have to be repeated year on year without fail. Breaching regulatory requirements can mean dire consequences for startups. From dealing with hefty fines to suffering from a tarnished reputation, legal trouble can land startups into significant problems.
Most startups completely forget the legal and regulatory part in the excitement of their new idea. However, understanding the legal repercussions is very important to come up with a product that is both sustainable and efficient. Some spaces require special attention – food and drugs, finances, cyber security, and so on. If your startup deals with sensitive data or finances, it is very important to ensure robust compliance measures. Ignoring these steps will mean a lot of trouble for startups at a later stage.
As must be evident by now, starting a startup is both easier and tougher than ever. While we have all the necessary resources at our fingertips, we are also dealing with cut-throat completion. To have an edge over rival startups is very important for founders to find a unique voice.
If you are solving a real problem with a viable solution that is accessible to the masses, your startup will have a high chance of success. Founders must focus on getting the fundamentals strong before foraying into more experimental spaces. In the end, it takes a lot of courage, determination, and patience to run a successful startup.