Monday, April 9, 2012

3 Factors That May Be Limiting Your Startup's Success

Ever attempt to water your garden or hose off your car only to find that a frustratingly persistent kink in the hose chokes the flow of water into a useless drip? That sharp angle overpowers your ability to use the hose as it was designed, as it would perform naturally, without the kink.
The natural state of a business, just like the natural state of a person, is one of health and growth. If certain conditions are in place, growth and success inevitably follow.
Human beings need food, water, safety and a handful of other things to thrive. Businesses need vibrant markets, talented teams, viable economic models and resources for execution. When these conditions are in place, ventures have a way of unfolding in the right direction. When the same conditions are missing or incomplete, kinks and bottlenecks can choke and constrain progress.
I spend a lot of time with clients helping them identify bottlenecks that are impeding growth. Imagine holding your business in your hands, rotating it like a soccer ball, examining it from different angles, so that you can locate the factors that most limit growth. As you reflect on your business trajectory, here are a few common limiting factors you might notice.
  • The market: Market demand for a product is the first source of all commercial success. Jeff Cornwall, director of Belmont University’s entrepreneurship program, has estimated that 40 percent of all failing ventures are doomed right out of the gate, simply because the basic idea isn’t viable. This may be because the entrepreneur’s product or service doesn’t solve a compelling enough problem, or because strong competitors are already addressing the problem, or because of an inability to promote and distribute the product through the right customer channels. Whatever the reason, the result is weak sales, which amounts to squeezing off the flow of water at its very source.  Until you find an ample flow of customers, treat your venture as an experiment, testing your idea in low-cost ways until you find that market sweet spot that can feed your business’s growth. Be willing to revisit and retool your offering based on early feedback and sales patterns.
  •  The math: You might have a great founding team and a ready market, but still flounder as a business unless your economic model makes sense. How large is your basic profit margin on each sale? Do you understand how to increase your margins?  Are you attracting profitable clients instead of over-demanding unprofitable ones?  Is cash flow working in your favor? How scalable is your business model?  The overall health of your business and its capacity for growth will depend on answers to questions like these.
  • You, the entrepreneur: One of my favorite clients, a technology founder caught in the gulf between raw idea and sellable product, once told me, “I’m going way too fast, and I’m going no where at all!” He had hit a point where his time was spread thinly across too many tasks, and he had to figure out how to multiply his impact. Are you the limiting factor to your venture’s growth?  This usually takes one of two forms:  1. A bad fit between your skill set and what the venture needs from you, or 2. You become so central to every key task that there’s not enough of you to go around. If so, it's time to take a pit stop and honestly evaluate what the business needs from you, what is the highest and best use of your strengths and how to partner with others (inside or outside of the firm) to fill your gaps.

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