Top 5 Reasons Start-Ups Fail

1. No experience in failure
Abid Butt loved the idea of ‘changing the game’ while working at Maersk Line … and while his idea’s were appreciated, not most really panned out. What’s important is, he not only tried but he used the mistakes to create contingencies against which he now owns e2e Supply Chain, a logistics company based in Karachi, with an annual turnover of USD 700 million.

While pursuing my masters in Paris, I briefly worked at Carrefour as a channel advisor, where a colleague and I toyed with the concept of organic foods within the bakery division. The mini business lasted a week, primarily due to poor demand planning and forecasting. Word of mouth and recommendations have a much higher weightage than any other communication medium in Paris, most because citizens spend most of their time out than in front of a TV or magazines – two saturated mediums of advertising spend. On the one hand, we created more footfall for the store with the result of unplanned purchases for other impulse items. On the other, when we failed to meet a growing demand (not having planned out sourcing to our 3rd party supplier) our overall image briefly suffered.

You will almost never encounter a low stock at N’eco’s.

2. Neglecting profits for revenues
In October 2010, Faraz Alamgir opened Marrakech Shisha Lounge in Karachi (Main Bahadurabad). While I do not personally know him, the entrepreneurs circle with Pakistan has spoken of his near demise and unexpected turnaround rather openly and with praise I might add. Going along the regular route for heavy sales, MSL was positioned to sell to any and everyone, taking on more delivery personal than what is usually practiced and creating custom meals where and when requested. This strategy while remarkable for the image and brand equity of the (then unknown) diner, eventually struck a cord with its P&L statement, with a sales to expenses ratio nearing 1.00:1.25

After much experimentation and deliberation, a balanced strategy was decided (which to date is known by no one, but I will speculate) to focus on 1st half sales on businesses (lunch hours in and outside offices) and 2nd half on deals and packages for the after school crowd. The delivery personal being replaced with CRM’s instead to track the repeated orders per group allowed for a proactive customization on brand equity building.

3. Lack of debate
Adil Moosajee started EGO in 2007 primarily on his own, with little funding and manpower on his side. While experience in the textile sector assisted him to a degree, the absence of selling and negotiation skills nearly cost him his business. This and the reluctance of what little workforce he had to disagree with his tactics. It was after failing repeatedly, did he change his approach and build the apparel fashion house to the standing it deservingly holds today. The takeaway is simply, that the path to success could have come earlier if being called out on errors came sooner.

4. Ignoring mistakes
Mistakes are not failures (point number one); rather they are microeconomic setbacks that occur with every business large and small. They can occur with the brokerage veteran setting up her own brokerage house and spares no one. What is critical is knowing what to do, when said scenario comes to repeat itself. There is a saying that the 1st mistake is allowed, but the 2nd is a choice.

When Ghulam Dastgeer set out with McAD Pvt Ltd he encountered setbacks in the execution phase with small scale projects and events (an area he was not familiar with, having been groomed from the ideation division of marketing). The mistakes include but are not limited to: choosing a supplier that is a friend (driving up costs), failing to sign a contract with vendors to assert availability and making assumptions regarding quality of hired talent. The event (a musical evening at Royal Rodale) flopped phenomenally. A second event the followed less than a month later at a local design institute shared the same fate. Not knowing him personally, I cannot ascertain what caused these setbacks. Colleagues in FMCG’s indicate that the idea’s presented by his agency excite them, but the execution falls very short till date.

5. Fixating on the wrong challenger
When we started N’eco’s, there were no known players in the organic foods industry, save for stay at home moms serving baked goods to local retailers and cafe’s. By the time we had identified our source of grief, the competitor had managed to replicate our product at a lower price (having no brick and mortar overheads) and attempted to compel N’eco’s to shut down. Long story short, all the managing & silent partners got together and data mined what the competitor didn’t have and what we did. The amount of legal trouble we created for the competitor (an unregistered business operating since 2006 … that had evaded tax collectors for years … and was being run through an existing franchise without the proper permissions) resulted in their disappearance from the market for nearly one year, in which time N’eco’s is now the top choice as go-to organic food diner for health conscious citizens all of groups.

Tags: challenges, EGO, failure, maersk, N'eco's, Shisha Lounge, sociality360, startups, top 5

Category: Business