Introduction

Tech startups used to always be associated with Silicon Valley. That time is no more – according to Harvard Business Review, there are 25 startup ecosystems all over the world, with each being worth over 10 billion USD.

The market is larger and more lucrative than ever before, so it’s no wonder thousands of entrepreneurs are tempted to give it a shot. Sadly, they tend to underestimate the barrier of entry: various sources state that up to 90% of all new startups fail, while up to 70% die after raising their seed funding

So how does one avoid that fate? To figure that out, we need to look at the reasons why so many post-seed startups decline in the first place.

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Section 1

Why do startups fail?

Many entrepreneurs don’t notice the red flags until it’s way too late. You need to know the problem to prevent it. So, let’s see what the most common post-seed pitfalls are.

As much as would-be-businessmen like to blame their startup’s demise on bad luck, the core reasons for most failures are perfectly avoidable.

The Top Reasons Startups Fail

Bad product-market fit. Some executives believe that as long as the product has a dedicated, albeit small, customer base, the service is viable. In most cases, this principle holds little ground – the business has to grow in order to succeed. 

If your product has been stuck on the same number of customers for weeks, perhaps, you should reconsider its feasibility. Some other symptoms of poor market fit include disregard for conversion and engagement rates, constantly dropping KPIs, and having more marketers than engineers on the team. 

There are multiple reasons for this happening, the most frequent of which are:

  • overestimating the customer segment – the demand is lower than expected;
  • underestimating the customer segment – the demand is too high to be reliably met;
  • overestimating the product’s relevance – the product is overshadowed by its competitors;
  • underestimating production costs – the product sells well, but the returns are too low.

Overreliance on investors. Reaching your seed funding goal may seem like an important milestone, but it doesn’t mean you can relax just yet. It’s very easy to go wild with your new loads of cash, and we all know how thoughtless spending can result in massive disappointments.

Listening to investors is important – to a point. They can offer some good direction and advice, but don’t forget who you’re selling your product to at the end of the day. Conduct customer surveys, ask your userbase what they would like to see improved or added to your app. The feedback may contradict your investors’ wishes, but it’s also a lot more valuable.

What’s more, investors will not stay by your company’s side through thick and thin – most will drop off if your KPIs fall below a certain threshold. If you find yourself disregarding most other production aspects in favour of hiring more staff ASAP, then you’re in trouble.

Poorly managed workflow. Passion is an amazing fuel, but it can only last so long. As soon as the process becomes somewhat mundane, the cracks in the management system will begin to show. The release cycles will start to grow longer and more tedious, the deadlines will keep getting pushed further and further, and the team’s KPIs will stay at the same underwhelming level. 

Many ambitious startups meet this fate due to their inability to commit to a structured workflow. Alternatively, the management simply lacks the skill and knowledge to properly organize the development team.

Slow processes are far from the only consequence of having a weak management team, of course. Bad practices also result in major financial losses, as well as hinder the quality of the product itself.

Inexperienced team. This one ties into the previous point. As the popular saying goes, “A players hire A players, B players hire C players”. Its meaning boils down to “weak management builds weaker teams”.

Regardless of its initial size, every startup needs a strong core – that is, a crew of people who know what they’re doing. Industry and technical know-how goes a long way – in the competitive IT sphere, simply winging it won’t get you far.

That’s because experienced specialists don’t just work faster, they work smarter. Moreover, they are able to provide more valuable input on your company’s direction and help you construct truly effective market strategies. Naturally, none of these benefits is applicable to a team of newbies.

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Section 2

How do startups survive?

Let’s start from the first point – product troubles – and see what you can do to get your startup back on track.

With how much can go wrong during the early stage of every startup’s life, it’s easy to lose hope. But think again: all of the traps mentioned above can be prevented. What’s more, their effects aren’t permanent – even if you have found yourself in one of these unpleasant situations, recovery is within reach.

Delivering what people want

Listen to feedback. By now you should’ve conducted plenty of competitor, market, and industry research, as well as customer surveys, to have a general understanding of where to go next. Continue improving your product – customer journey interviews and proven statistics will be your best source of guidance. Seek ways to constantly increase your product’s usability – it’s a surefire way to improve customer experience. 

Stay afloat using concrete data. If you’ve found yourself in some hot water and feel like your investors are about to drop off as user numbers stagnate, it’s still possible to turn the tide. Pay utmost attention to the following metrics: customer retention, revenue from new users, and revenue from retained users. These will give you a clear picture of how well your product is really doing and help prevent customer churn.

Set budgetary limits. Learn about the previous unsuccessful investments your or other well-known investors have made. Analyze where and why they went wrong. Try not to raise too much money too quickly either – prioritize it only when it’s really necessary. If you don’t want to burn through revenue, set limits on the amount of money you can spend per time period. At the end of the day, having some cash to spare never did any harm.

Pay attention to managerial accounting. It’s good to be able to track your investments and limit your budget appropriately, but that’s not all there is to good financial management. Managerial accounting deserves special attention, as it is responsible for how you allocate your costs. A startup has to think ahead, and managerial accounting does exactly that – defines how much your company will spend on the development of certain features and marketing activities, while meeting the needed KPI.

Organizing the team’s workflow

Decent team management is crucial for any post-seed startup. Thankfully, there are several reliable ways to streamline the process, as well as to boost the team’s productivity.

Use the SDLC. First of all, integrate the Software Development Life Cycle as the base for your workflow. It’s not as complicated as it sounds: the SDLC simply means applying standard business practices to building software applications. So, a classic SDLC consists of 8 stages: Planning, Requirements, Design, Build, Document, Test, Deploy, and Maintain.

Employ project management software. Keeping the process organized is a lot easier with specialized software. Project management applications allow you to easily handle and monitor your team members’ workload, as well as to quickly communicate with each employee. The most popular project management tools are Trello, Asana, Fibery (Targetprocess), Wrike, and LiquidPlanner.

Give clear instructions. Providing clear instructions and technical specs goes a long way. Having them unambiguously written down will not only increase the consistency of your team’s performance, but also help adjust the KPIs and lower your risks in future development cycles.

Empower your team. Passion alone can’t save a business – yet it can help it recover a lot faster than it would have otherwise. You won’t see great results from an unmotivated team, even if your workflow is seemingly well-balanced. Try to make every team member feel valuable, involve them in decision-making and sharing their work results. It’s amazing what a sense of community can do.

Expanding the team

Every startup needs a strong foundation – not just in the idea sense, but in the skill level of the people involved. If you’ve secured your seed funding, then you’ve got that foundation. But what if you want to improve your delivery even further?

Growing the team is an effective and straightforward tactic to boost any startup’s user acquisition. Faster and more efficient development means faster time-to-market, and, consequently, faster market expansion.

So, what you need is a team of experienced developers who will be able to not just keep up with your in-house employees, but to improve on some of your processes. Of course, hiring people off the street is not an option, and freelance specialists are prone to be hit-or-miss.

There are two major tactics to finding reliable developers in cases like that.

Hiring someone you know personally. This one’s a simple trust-based strategy, which can, in fact, work out rather well for your business. It can be either somebody you already know or someone your friend or family member recommended – either way, having a personal guarantee is reassuring for a lot of people.

Even so, it may not mean much if the person you get the guarantee from knows little about the industry themselves. Personal judgement may get in the way of rating the person’s abilities objectively, so betting everything on word of mouth is not the smartest choice.

Plus, unless you have a ridiculous number of IT experts in your friend group, building a whole development team based on acquaintances alone is nearly impossible.

Outsourcing. Outsourcing is a wildly popular method of hiring quality developers for startups, especially for those that have already secured their seed funding. Some of the world’s most popular apps (Skype, Whatsapp, and Alibaba, to name a few) outsourced their software development during the early startup stage.

Since outsourcing companies directly depend on their service quality, they are very meticulous about their work processes and specialist expertise. This makes them one of – if not the most – reliable solutions to the problem of finding a skilled development team.

And as we’ve already mentioned, the skillsets of industry professionals aren’t limited to effective coding. Outsourced teams include experienced project managers, business analysts, marketing specialists, and so on. This means that they’re able to give you some real pointers on how to improve your business model or figure out the best way to market your solution to the public. 

It’s also a good financial choice. The fact that you don’t have to waste resources on maintaining a whole extra crew of in-house developers is a substantial benefit. In addition, while outsourcing may seem quite costly in the US, Western Europe, and Australia, Eastern European developers deliver the same level of product and service quality for half the price.    

That said, outsourced development may not be appealing to startups that are creating some novel experimental technology. The reason behind this is the hesitance to reveal their “secret tech ingredient” to a third party. While the concern is absolutely understandable, stolen technology and information leaks are a non-issue if you’re working with a trusted company.

How Do Startups Survive
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Section 3

Conclusion

As a modern startup, you either learn to think ahead, or fade into obscurity.

Sure, raising seed money is easier now than ever before. But the more businesses enter the market, the more vicious the competition becomes – and you need to account for that.

Don’t get trapped in the cycle of seeking to attract more investors than you know what to do with. Rather, try focusing on building an efficient workflow, analyzing important data, fostering smart ideas, raising the quality of your product, and finding developers you can depend on.

Bamboo Group can help you with all of that. If you want to ensure your idea’s success, sign up for a free consultation with our specialists. Let’s bring your startup to a whole new level!