Whether it’s Microsoft, Apple, or Facebook, they all began as startups. Those who invested in these startups are multi-millionaires, and, of course, the founders are a step above. But that’s not the story for all startups.
For every successful startup, there are thousands that fail. Investing in the wrong startup could mean losing all your money. So how do you choose the right startup to invest in? Read on to find out five facts about angel investing.
Fact 1: More Failures than Successes
Every successful startup needs a clear business plan and vision. There needs to be a feasible business model, sufficient research needs to be carried out, a well-organized team must be put put in place, along with a proper allocation of capital. When these factors are not in proper order, the startup fails.
Here are some of the reasons why startups fail:
No Clarity in Business Model
A clear business model is the blueprint for the success of any business, and it’s no different for a startup. The right business model will generate sufficient revenue to sustain the business over the long term. When the business model is vague, the startup will fail to reach its monetary goals, and investors will find no reason to invest.
Unable to Create an Organized Team
The success of a startup depends on the team created by the founder. The organization must have professionals in all disciplines like marketing, administration, and Information Technology (IT). Proper coordination between the team members is important for the business’ success. If the founder cannot afford to pay competitive salaries, they should offer equity to the team to ensure continuity.
Poor Market Research
If the startup has failed to conduct market research before launching a product, they have a product that does not meet the market’s needs. A product needs to be technically sound and marketed effectively to be successful. The founder needs to study the market and the competition to know what will sell. The product needs to solve a problem in the market, not fulfill the interest of the founder.
Lack of Leadership and Management Skills
A startup might have a great product, but that does not mean it has the right leadership skills. The CEO needs to know about planning, staffing, organizing, and execution. You need more than brilliant ideas and soaring ambition to run a company.
When a startup can’t decide on its priorities, decisions can prove to be costly. Examples of such decisions include miscommunication, hiring the wrong staff, inefficient leadership, and more. Spending too much time on a decision can also affect the business.
The success of a startup or any business depends on proper capital allocation and having sufficient capital at every stage. Most startups fail because they don’t have the required capital at every stage.
Not Factoring in the Competition
If there is an opportunity, there will be many players to seize it. Startups need to find a niche market and get the early mover advantage.
Putting Personal Goals First
Startup owners need to have the motto, ‘business before self.’ They need to focus on achieving success under all circumstances.
Fact 2: Most Startups Begin Modestly
Startups never have a grand beginning; they often start in a humble way. Think of all the big names like Amazon, Microsoft, or Facebook. While Amazon and Microsoft started in a garage, Facebook was created in a dormitory at Harvard.
Apple and Starbucks, too, had a humble beginning before they became the iconic brands they are today. Facebook was meant to help university students connect with each other; it ended up connecting 2.8 billion users worldwide. Most startup owners try to emulate the ‘start small’ philosophy.
Fact 3: Meant For Risk-Takers
Startup owners never play it safe. They take calculated risks that pay off. They looked for unexplored risks in niche areas. Jeff Bezos and Elon Musk believed in their ideas and went ahead even when others were not so confident.
Jeff Bezos started Amazon as an online book store when the internet and e-commerce were in their infancy. Today, Amazon is a multi-product global online store that has patrons in all countries. The innovation in rocket-launching technology through Space X has made Elon Musk billions of dollars – the reward for his entrepreneurial mindset. Both Bezos and Musk were ahead of their time and implemented their ideas to become successful startup owners.
Fact 4: Founders Don’t Remain CEOs
While startup owners might have to multitask when they are starting their venture, as the business grows they need to delegate the company’s operations to a qualified professional. They either don’t have the background to manage a company or would rather focus on their primary goal – developing and improving their product.
This benefits the startup since each member of the company, including the founder, is working on their strengths. This ensures the highest productivity and revenues.
Fact 5: College Dropouts Win the Race
It’s surprising but true. Most of the big names in startup history are college dropouts like Bill Gates or Mark Zuckerberg. There are some school dropouts too. However, not all dropouts make it. Only those with business acumen, the ability to work hard, and a unique business idea made it big.
The success of a startup depends on a sound business plan and passion on the part of the founder. It takes immense time and effort to build something from the ground up, but dedication is key to helping you achieve success. We hope this guide helped you with some of the key facts about startup investments. Good luck!