Jitendra Tanna, founder of Eternus solutions, throws light on why many startups fail

Jitendra Tanna founder, Eternus solutions, a company that provides customer relationship management (CRM) solutions to companies all over the globe shares his perspective on the five most common reasons why startups fail. He is also a TiE Pune Charter Member and has over the years, mentored several start-ups.

Cost cutting: While I understand that startups should not be extravagant with their funds, all too often I have seen entrepreneurs who pull at their purse strings in a wrong way and they under spend to a mindless degree. If you ask them, why you are not going national, they will say I will wait for numbers to happen in one city. They do not understand that speed is the name of the game.

I had mentored a company, Dr Battery where they had a good solution for rejuvenating car batteries and where they had made one prototype. I asked them why they were not making more, why not sell to IT companies that use batteries. But they were more focused on having a proof of concept before plunging into manufacturing.

A year later another startup from Delhi provided the same solution through a different way and has spread to Maharashtra, Gujarat, and Andhra. When you are a startup you have to take a deep plunge and go all in, as the markets will not wait for your Pune numbers to happen and someone else will beat you to it. If you have to spend money to hire a salesperson, manufacturing in larger numbers, or whatever, you have to simply spend. Always remember growth requires money.

You should not curtail growth by being lean unnecessarily, as you can be lean at a stage when you have achieved a certain level of growth. Startups need to understand the difference between spending when it is required and being conservative mindlessly. I feel many start-ups miss this point out and rather than managing the cash flow they control the cash flow. They scrimp and scrounge and the payback is lack of growth.

Choose your co-founders well: Generally one sees friends, colleagues who join up to start a company. You must remember that founders are the key to success. They must be people with complementary skills or must acquire them, they must be emotionally stable. If they lack any of these then the company is sure to fail.

For example I have mentored this company founded by techies who worked in an information technology (IT) firm. They came together to form a company that built a software solution for housing societies and they did really well and had more than 70 societies, but they had founder problems. It was an ‘I did this-you did that’ syndrome and as a result the company failed. I have seen that mostly people with same skill sets will come together- say all techies or all finance people and one of them will, by the way, manage sales or finance or whatever. But he will not have the skills to do so. Also, there will be many ups and downs in the life cycle of a startup and emotional maturity is required to handle that along with a sense of alignment towards the company goal.

Be ready to sleep with the enemy: Can you collaborate with competitors so that your company grows faster? I know of two startups in the auto business, where one was into servicing cars and the other provided a car cleaning service. They essentially saw each other as competition. But a closer look showed that while they were both servicing the same industry, they could actually come together to do much greater business. A person servicing a car may require his car to be cleaned and the cleaning company may notice a dent which the servicing company could fix. So one plus one could make four or five if they agreed to collaborate. They did and are now growing in leaps and bounds. Sometimes sleeping with the enemy makes sense.

Failure to recognise competition: I have noticed in almost all startup pitches that we attend; most of them think they have no competition which is a fatal mistake. Take for example a bike sharing company; they may not see an Ola or Uber as competition, but if these taxi services offer a 50 or 60 per cent discount then a taxi ride becomes cheap and people would prefer to take a cab than hire your cycle. Same goes for an Uber, for a short two or three kilometre people may not want to spend money and may be inclined to take a cycle. So even though they seem like separate markets the competition is closely linked. Always be fully aware of the competition landscape.

Failure to manage money: From the investment, expense or revenue stand point, start-ups that do not manage their cash flow well will most certainly fail in 12 to 18 months. They should neither be too liberal nor too stingy with their cash. What they need to remember is that every rupee you spend should take you closer to your goal. So if you are spending ₹10,000 to hire a salesperson that should take you closer to your goal. Another thing I would like to mention is that start-ups need to open up about equity as simply holding on to your equity and not growing is pointless. Even if you are paying the price of equity remember that growth is the only way to go for a startup and you need to do what it takes to get there.