What are the major challenges and obstacles that founders face and why do the vast majority of tech ventures fail?
Founders with limited or no prior tech expertise.
Around 20% of tech startups fail in the first year. 60-80% in the first 3 years and 90% overall. The reasons are outlined in this top 21 biggest challenges that tech founders face. Most of these risks can be mitigated if founders have the courage to accept the reality of their situation and work with the right people and teams to bring their dreams to success. As founders ourselves at Dreamoro who have experienced all of these challenges first hand, we can help founders avoid the many challenges that lay ahead.
Team size vs performance and capability.
How does a founder get access to the right team, with all of the right experience from day 1? You would need a team of 15-20 people from day 1. How do you finance this? The consequences of not having the right team from day 1, and a team that knows how to work together will likely result in a journey over the next 5 years plagued with mistakes you wished you had avoided, delaying your time to market, growth prospects, capital usage and success. This is a key reason we created Dreamoro to give founders access to these skills without the usual risks and cost!
Building the right team and keeping them engaged.
Building a team is an exciting journey - if you get it right! Otherwise it’s a nightmare. Even the most experienced executives struggle to hire well. Part of the reason for this is that you have to be an expert in all facets of business to select the right talent; sales, marketing, BA, design, software development, dev ops, UAT, finance, admin, legal, support, customer success and HR. You also have to be good at selecting team members that will work well together and fit the culture you are seeking to create
Raising the right amount of capital, from the right sources and under the right capital structure is critical. Get this wrong and you may find yourself with a range of challenges including; potentially unnecessary dilution of your shareholding with the wrong advice, loss of control of your own business, arrangements that could see you ousted from your own business, running out of cash leaving you vulnerable to investors at the next capital raising just to name a few. You will want to believe that your advisors have your best interests at heart, when the reality more often than not is that they are focused on their own fees and getting the best deal they can for the investors they are bringing in!
Proving product market fit.
This is critically important. Validating that you have a product that genuinely meets a “compelling” market need will contribute to ensuring you will have a successful business. All too often the founder thinks they know their market well and has blind belief in the need they are seeking to address with their product. Getting this wrong can result in a) multiple pivots of your business model and a product at great cost to shareholders, b) slower than desired revenue growth which will feel like a form of slow torture growing your business and c) allowing opportunities for competitors to step in who can see where you are failing and pip you at the post with a more compelling product.
Defining the MVP.
Every founder has in their head and million and one ideas of what they believe is needed to create the perfect product which customers will love. However defining the Minimal Viable Product and using that to test and validate if you have a successful opportunity ahead of you is critical. An MVP shortens your time to market, investment and reduces business risk. It allows you to learn with short sharp iterations until you find what really works and pivot more easily early on. It will help you establish the foundations and culture your business can build on. Importantly, it will allow you to stop early before you torture yourself if you figure out it won’t work. There is no shame in failure, and in fact quite the opposite, as you will have earned the respect of investors with your next venture who will know you learned some valuable lessons. Fail fast if you can. Learn from the experience and move onto the next venture or pivot.
Getting the business model right.
This MUST be resolved from the outset. All too often there is a view that “let’s get the traffic and we will work out how to monetise it later”. Sure, some get lucky (eg, Facebook, Instagram) but these are rare cases. Working out how you are going to make money, and validating your pricing model with the market BEFORE you build anything is vitally important to guiding to success. Know the business metrics which define successful performance of your business, some of these will include CAC (Customer Acquisition Cost), Customer Churn, Lifetime Customer Value, Click to Conversion Rates, Website Traffic, Time on Page, Mobile App Downloads, Frequency of Use, Number of Active Users etc.
TAM - Total Addressable Market.
Investors have become aware that virtually every founder has a lofty, inflated view of the TAM. A robustly calculated, critically reviewed and conservatively estimated TAM will both win you investor confidence and importantly ensure that you actually have a market that is big enough and ready for your product.
Take lessons from the strategies of Sun Tzu. Know thy enemy! Keep your friends close - keep your enemies closer. You may think you don’t have competitors now, but next week you may find yourself with three. Arrogance is the biggest enemy of a founder - it blinds you. Consider carefully the market structure, who the range of competitors are or could likely be. Develop a clear and competitive USP from the outset.
Sales is a profession and requires a carefully developed strategy. It requires strict adherence to specifically designed processes and benefits significantly from people with experience. Any business can “trip over” the first 10-100 customers in a market which may make you feel emboldened by that success and blind you to the struggle you will likely face to get beyond a certain number of customers. Very few founders are trained and skilled sales people. So how will you secure your customers without a well defined sales strategy and team? Even with the best oiled machine there is a time lag between hiring sales people and when they start hitting their targets - this can range anything from 3-9 months before they contribute meaningful sales to the business.
Marketing is almost always the bottomless money pit littered with failed marketing campaigns and lots of learnings. An investment in marketing may take 6 months to 18 months to see a return, and often many weeks or months to figure out if the investment in a campaign is working and delivering acceptable ROI. Finding marketing people with the right and proven skills who can help you will probably be one of the hardest challenges of your business to solve, and chances are you will experience many failed attempts at great cost to your business, capital and sanity.
Business partnerships and channels may be an important part of your strategy. Partnerships are hard. Why? Because all too often there isn’t strong alignment between your business priorities and that of your partner’s, or a strong alignment of values. The good news is that with a well defined partner program you can underwrite the likelihood of building successful partners. Keep in mind though that partnering is a “long game”, meaning it will bear fruit in 1-2 years time and rarely in the short term.
Trademarks and IP protection
Undertake trademark searches early, register your trademarks and secure IP protection if possible. It may cost you a few thousand dollars to do all of this (usually $5-10k), but will save you heartache longer term. It isn’t something you would do from day 1, but certainly before bringing an MVP to market.
There are around a hundred different processes and systems that need to be considered and created when building a successful business and ensuring they are “baked” into the way the people in the organisation work. It takes years to develop. Not getting this right early on increases execution risk, quality of your products and services and efficiency of your team and operations.
Platforms & Tools.
Selecting the right underlying platforms and tools that your product and business is created on and supported by. You will need to make decisions around development platforms, languages, hosting platforms, CRM, support systems, collaboration tools, testing tools, payment platforms, security systems and tools, databases, middleware, front end systems etc etc. And you literally have a source of global options to pick from. Get it wrong, and you will find yourself incurring costs to migrate from one system to another over time. Getting the right advice to make the right choices early on which support your plans will help you avoid much of this pain. Some are unavoidable as systems change and new and better products and tools are being released every year.
Product Strategy & Architecture.
Ensure you develop a clear product roadmap. What problems you are seeking to solve and how you will measure whether your product is successfully delivering the user experience and outcomes you want. Prioritise your feature development program and develop an optimal scalable architecture. You will be surprised how often a founder will get help from a “developer” to build their first product only to find out it falls over when 20 concurrent users start using it! Product and Platform architecture is critical to get right and few software developers have the experience to design this for scale, meaning, when you may have thousands or millions of users on the platform.
A data security breach can kill your business in a split second. Loss of trust by your customers is very hard to recover from. You may also find you become a victim of ransomware. You also have local and global security compliance obligations like GDPR. Who do you know that you can trust to get the right advice? This is not something you want to get wrong. Developing a clear security strategy and program for your business is critical which inclusive of regular penetration tests and monitoring.
You want to design your product and platforms from the outset with scalability in mind. The medium to longer term consequences of not getting this right are application rewrites, database and platform migrations. Bottom line - cost and delays to market and restrictions on growth. All mostly avoidable with the right architecture from the outset.
UAT - User Acceptance Testing
A successful product delivers the best user experience, free of bugs and works for the user as expected. This isn’t just about the UI/UX design either, it's also about the platform performance - how quickly the product responds to user inputs. There is nothing worse than a system that fails.
Your first customers.
Anyone can trip over the first few, even the first few hundred, so don’t be fooled into believing everyone wants what you have created with what you may see as early success. Be careful to select “who you want as customers”. The wrong customers can become a terrible drain on your business and even distract you from your path. The right initial customers can catapult you to success. It is an interest balance that must be carefully considered, and can sometimes blind you in a way that can be very harmful. As humans, we are wired to look for confirming evidence for why we are right, rather than looking for the reasons for why you may be wrong!
Support & Onboarding
Creating a seamless onboarding and support process and building a team which delights customers from the first contact is extremely valuable. First impressions last and shape the customer experience, and you only get one chance to impress your new customers. There is truth in the old business adage: “A happy customer shares their experience with a handful of others; an unhappy customer shares it with the world!”
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