The word startup has become synonymous with success. Amazon, Uber and Airbnb are excellent examples of very successful startups. But what about those who don't? The surprising reality is that most startups are not doing well. In fact, more than two thirds of startups never make a profit. It takes a lot more than just a great idea to start a successful business: all of the pieces have to come together at the right time. This rarely happens without effort.If you are planning to start a new business, here are five pitfalls you need to know about. First Reason: Market Problems One of the first reasons most startups don't do well is because they can't read the market properly. The idea may be great, but if the product receives little or no acceptance in the market, the company quickly gets into trouble. How do you recognize this problem? The following symptoms are prominent indicators of this problem:
Poor value proposition. The startup had a compelling value proposition or event that led customers to commit to buying what they were selling. A startup that doesn't get it right is not going to get it right. Selling in today's business market is tough.There are so many options and customers are more demanding. In fact, savvy salespeople have a specific metaphor for it. In order for a product to sell, you need to find a segment of customers who have “hair on fire” or “excruciating pain” and who need immediate relief. In other words, you are selling a vitamin or pain reliever. Bad timing As with anything in life, timing is everything. Some startups don't know they are ahead of their market, and while the value proposition may be strong, the size of the market will not be able to support the company's growth. Simply put, not enough people will have the money or see the need to buy the product. A good example of this are the 1998 mascots.com. It pretends to be an Amazon for pet owners, but the idea failed for several reasons: the business model was unsustainable and growth expectations were inflated, but for those reasons aside, Pets.com overestimated the number of online customers Business model An unrealistic business model always means the failure of any company. A common reason for a startup to fail is the assumption that customers flock to them because they have an amazing product or service. This can especially happen with early customers - most startups will find that maintaining a steady stream of customers takes a lot more effort. It is likely very expensive to acquire and acquire customers.The cost of customer acquisition (CAC) is most likely higher than the lifetime value (LTV) that individual customers bring in. Most companies do not make realistic cost forecasts when it comes to customer acquisition. This is a serious mistake. A business plan that does not take this crucial step into account will not work. So what should startups do to counteract this oversight? The Basics of a Successful Business Model The startup must find a way to make more money over the life of its customer relationship than the company spent on attracting customers. A good tip for building a successful business model is to focus on these two questions: Can you find a scalable method for attracting customers?Are you able to monetize these customers for more than you spent on attracting them? Simplifying the process of developing your business model will make a huge difference.
In addition, you can use the following guidelines as a practical guide. The Thought Process You Need to Join The Rule and CAC / LTV Ratio As described above, your CAC needs to be lower than the LTV There is no getting around this rule. The best way to find out if you are getting it right is this Calculation of your LTV / CAC ratio. Ideally this ratio should be 3: 1; H. the value that the customer brings in for the company should be at least three times the acquisition cost. nearby, you spend too much money and when it is too wide e.5: 1, spend very little and likely lose business in the process. To calculate this ratio, you need exact numbers for the CAC and LTV. Calculating the CAC To calculate the CAC, every new company must consider its total cost of sales and marketing. This includes expenses such as salaries, marketing campaigns, lead generation and conversion methods, and travel expenses.