Pick n Pay has revealed that Smart Shopper customers have not redeemed R200 million worth of points in the last twelve months. The retailer…
It is sometimes too easy to dish out titbits of startup advice from a venture capital ivory tower without going through the practical realities of executing a business plan, but pattern recognition could close some expectation gaps.
As Paul Graham pointed out in his version of the Startup Curve, while many people think startups are smoothly up and to the right all the time, the path to success is more of a roller coaster ride. Because of a fragile startup ecosystem in South Africa, startups here have additional challenges to overcome. An adaptation of the Startup Curve reflects the typical path of a local startup’s wild ride through the wiggles of realism from idea phase to becoming a sustainable venture. So let’s go!
Have a great startup idea? Don’t quit your day job just yet. There are first a couple of questions that need to be answered about responsibility, dedication and the type of startup you are launching — a lifestyle business, small business, scalable startup, buyable startup, large company or social enterprise. Initial enthusiasm is great to see, but there is a fine line between optimism and naivety or irrationality. Reduce some risks of uncertainty by focusing on your potential customer and understanding the size of the opportunity.
Experience has shown that there is a huge expectation gap for entrepreneurs who launch their concepts with great gusto and what actually happens. Reality bites when they realise that support structures are limited, VCs are loath to have that coffee to bounce ideas off, angel investors require traction before remotely entertaining startup ballpark valuations and red tape hampers the formalisation of the business or serious engagement with potential corporate clients.
Lack of traction
Traction means having a measurable set of customers and/or other proof points that indicate long-term positive momentum towards achieving the ultimate business vision. It pretty much always happens too slowly and not in line with initial expectations. Different traction verticals can be pursued, but ultimately a lack of traction leads to…
By now rational thoughts are starting to interfere with your dreams of industry disruption. Why did you quit your day job so soon? Despite your best efforts, while many people are interested or intrigued by the pitch, you can’t seem to close an investment round and the opportunity cost of time outweighs the probability of converting a sales call.
Crash of ineptitude
Eventually sustained pressure fuelled by a monthly cash burn rate and an ever-shortening runway could lead to the crash of ineptitude — defined as unskilfulness resulting from a lack of training. If there were more entrepreneurship training, small business information and support structures available, South Africa could narrow the expectation gap between Initial Enthusiasm and Reality Check and shorten the Table Mountain resembling trough of sorrow by getting traction earlier.
Clearly not all startups crash. Some take risks to stay on course and execute their vision despite the odds. Because of the fine balance of boxing above your startup weight to gain clients and fulfil orders on scarce resources in the early execution phase, you are always one move away from failure. But luck has to do its magic here and provide the break that pulls your startup into a positive trajectory. Create your own!
Skills. Networks. Funding
Once here you have earned respect because of sacrifices made and early glimmers of traction success. Angel investors take notice and VCs sense that your pitch is not a plea of desperation. You realise that you don’t have to have all the skills, but you need to know where to find them — and you do since your networks start widening. If you now add funding to the right window of opportunity it is fuel to the fire.
Now that the startup has to a large extent addressed the question of user risk (will people want to use the product/service?) and revenue risk (will people actually pay for it?), you have to focus on scale risk (will people use or pay for this in large numbers?). But with the additional resources behind the business, growth can be engineered.
Path to sustainability
A startup is a company in search of a repeatable and scalable business model. So once it has reached this point of repeatability and scalability it shows characteristics of a traditional sustainable business. It becomes an SME that creates jobs and contributes to the economy but now has to start worrying about another curve – the Industry Life Cycle.