Become investor ready?
NOM comes across innovative ideas for startups every day. Many of these startups need external funding to realize their ambitions. For a long time, this seemed difficult because of the limited collateral security and uncertain future prospects, but the funding landscape has changed. More capital is available, in part because interest rates are low. Still, the "valley of death" remains a challenge: the phase between initial investment for startups and the next step of growth, in which business angels often play a crucial role.
What is crucial for successful startups?
NOM encounters many entrepreneurs with innovative startup ideas. These ideas range from a new app for organizing events, a platform for making study materials available worldwide to solutions for logistics problems in inner cities.
These entrepreneurs often need external funding to realize their ambitions, but depend on opportunities to raise capital. Because of this, startups often experience the "valley of death": the gap that falls between initial investment and large follow-on investments a company needs to grow.
The 'valley of death' is usually filled by Business Angels, or informals. The NOM business developers guide these innovative startups towards funding; usually with Business Angels whether or not in combination with another financier, often a fund.
But besides funding, what is crucial for a startup to succeed? The number of startups growing into unicorns (a startup valued at least $1 billion) is increasing. At the same time, 70 percent of startups have to exit within a few years. On average, the first 20 months after investment prove to be a critical period for these companies. Why don't these companies make it? Is it a lack of growth money, marketing or were they unable to scale up? NOM lists a number of reasons why startups fail.
Reasons why startups fail
Besides funding, there are a number of common reasons why startups fail. For example, this is because the target market is not properly identified, resulting in a solution being brought to market that is not needed. In addition, there are a number of other important reasons why startups do not become successful.
- There is insufficient commitment from the founder;
- There is no suitable multidisciplinary team;
- Market validation is missing;
- Sales come later than planned;
- The inconsistent scaling of the stages a startup is in.
Risk-bearing involvement in the startup
It is important for founders to have creativity, perseverance, be able to deal with a high degree of uncertainty and be result-oriented. Starting a company requires a lot of commitment, and with a 40-hour work week, you often come up short. In addition, founders must have "skin in the game," that is, be involved in the venture on a risk basis themselves.
Furthermore, it is important that the entire team takes a multidisciplinary approach and takes into account the startup's financial situation. Entrepreneurs are often optimistic and often estimate the future in a rosy light, which means that they only look at the short term. In practice, however, it is often the case that costs are higher than projected. Therefore, it is important to be flexible in the cost structure and keep a close eye on revenue.
Lack of market validation
Insufficient listening to customer needs is a common pitfall of startups. Many startups make assumptions about their target market and the market on which their idea is based. In retrospect, these assumptions often turn out to be incorrect.
Research shows that as many as 42% of startups fail because they develop a solution for which there is actually no demand. A common mistake in market validation is that startup companies focus too much on validating their solution, rather than understanding the customer's actual problem.
Successful startups distinguish themselves precisely by testing their idea against the market at an early stage. Engage with potential customers and first discover where their real pain points lie. Then formulate a clear "problem statement" and test it with your target audience. Only when you are sure that the problem exists and is relevant do you investigate whether your solution is seen as the best way to solve that problem and whether customers are willing to pay for it. That moment marks the "problem-solution fit. Next, develop a prototype as soon as possible and test it again with potential customers to further validate your assumptions.
Inconsistent scaling at startups
A common pitfall with startups is inconsistent scaling: continuing to grow without first having found a clear product-market fit. Many startup companies invest early in organizational setup, marketing strategies or product development, while the foundation is not yet solid enough.
The result is that unnecessary capital is "burned" on things that don't fit the stage the company is in, making the startup less agile. For example, entrepreneurs often spend too much money on marketing before there is a proven, repeatable and scalable sales process.
Successful startups should initially focus not on growth, but on their customers. Sustainable growth is possible only when the product connects to a clear customer problem and when the sales process can be scaled up reliably. Access to capital is important to get plans off the ground for startups, but the real difference is made by a driven entrepreneur with a strong team and the knowledge to systematically build a scalable business.
Help for startups: choose the NOM Startup Program
Want to take your startup to the next level? Join the NOM Startup Program! In three dynamic tracks: Validation, Customer Solution and Go to Market, we guide northern startups to success. Validate your idea, perfect your solution and get the commercial commitment you need to grow your startup.