How should start-ups self- evaluate their business?
INTRODUCTION
Good ideas combined with experienced and skilled executors are finding a large number of backers who are willing to take their bets on start-ups.
Indeed, these are the best of times for start-ups in India.
However, there are early indicators of slight reduction in early stage funding in the last six months. While this might not be a permanent phase, as the ecosystem matures and funding institutions turn cautious, funds might get tight going ahead.
In such cautious times it makes a lot of sense for start-ups to self-evaluate their business
How should they do so?
A survey was done to many start-up founders and these are the results:
1. Does the per unit sale price cover costs?
If the answer is yes, then the business as well as the company has a strong chance of survival till the next round of funding.
If per unit sales price is negative after factoring in all costs and forecasts indicate that they will remain so for a long time, then the company is in trouble and has a chance of failing.
“If unit sale price is positive only at a large scale, then funding becomes extremely necessary,” says Shikhar Khanna, co-founder of Blinge. Bilnge is a rental platform for high-value clothing and accessories.
2. Is the business model sustainable?
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The business model and the idea behind a company should be able to carry on till the funding environment changes.
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Start-ups can just adjust the scale of their growth and survive for about six months to a year if they can pass through rough times.
3. Is the product idea viable at this point of time?
A bad funding environment is an acid test for a company.
If an idea can remain viable during low funding stages, then it might not just survive but also has the chance to become a big company in the long run.
The right fundamentals will prevail even if the funding is a little cautious. While it does not take many funds to build a product, it takes funds to build an entire ecosystem and acquire customers.
Start-ups should see if there are enough takers for the product on offer, experts say.
4. Are start-up founders investing their personal funds?
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If the founders and the backers of a start-up strongly believe in an idea, a constrained funding environment might not be a serious problem.
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In many cases, entrepreneurs invest personal funds to keep a company growing until it receives a serious backer bringing in sizeable funds.
5. Are Start-ups bringing innovation to the table?
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Almost all of the survey respondents vouched for an innovative product as a reason.
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Only if there is genuine innovation behind a company, most start-up founders believe that it will be not be tough to either find funds or successfully build a business, going forward.
6. What is the problem the start-up product is solving for the customer?
The idea for a start-up should solve an existing problem for which there are few or no solutions available.
“The question to ask is, is it a real problem? Or is the start-up creating something that already exists in the market?”
There are a large number of start-ups that base their ability to survive on building scale and not on uniqueness of their ideas.
In times of less or no funding, the business model with the best ability to survive should have a product which is able to solve a “real problem” for the customer.
7. What is the product that the start-up is creating?
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The product that is created by a company should be of top quality in addition to solving a problem and being a bankable idea.
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In case of application based start-ups that are currently in vogue, the technology and ergonomics (or ease-of-use) of the app should be appealing enough to bring in a large number of users.
8. How much and what does it take to break even?
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A start-up should always have a vision for the future. Even if it takes a large amount of funds to survive currently, it should be able to predict at what point it will break even.
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In case of customer-centric start-ups, they should be able to analyse the quantity and quality of repeat customers and users it takes to break even.
9. How good is the team?
In addition to an inspired team of founders, a start-up should have the right kind of experts for each task, be it the technology side or for marketing.
It takes extremely good quality employees to drive growth in troubled times.
Only the team members with the right combination of subject knowledge, passion and perception survive and grow.
10. Where stage is the start-up at and what is the value that customers are adding?
The stage of a start-up determines its ability to succeed in lieu to funds available.
Early stage start-ups do not require great volumes of funds while acquiring customers.
If a start-up is burning money with no value in sight, it is also the right time to ask what value is every customer that is added providing.
For instance, in the case of an e-commerce business, the questions to ask would be: how much are we spending to acquire a customer? Will this customer provide repeat orders? Is the customer a discount shopper only or will he buy products of value?
Once these questions are answered, the business will survive the test of time and the start-up would have done an effective self-evaluation.
THANK YOU.