Debate rages over the prevalence of business start-up success. Rumours suggest that nine out of every 10 new businesses fail. However, the actual research shows less depressing, though still challenging, results.
In the UK, The Times estimates that one out of every three new start-ups do not survive the first three years of operations. In the United States, the US Bureau of Labour Statistics details that 30 percent of new ventures fail in the first two years, 50 percent in five years, 66 percent in 10 years, and 75 percent fail in 15 years or more.
Researchers at Bradley University and the University of Tennessee find that the likelihood of business start-up failure range differently depending on industries whereby information-based businesses fail at twice the rate of insurance, real estate, and financial start-ups.
Many entrepreneurs fall into the typical product development trap that snares budding entrepreneurs. They come up with what they think entails a brilliant idea. They then secure funding from family, friends, and the bank.
Next, they rush to develop a prototype and seek the opinions of family and friends. Does such a product development cycle sound familiar? Sometimes the cycle leads to success. However, triumph under the above model derives more from luck than anything else.
Stanford University professor Steven Blank claims such a cycle might work in well-established businesses with brand names, but spells doom for start-up entrepreneurs. Instead, one should follow the Colorado State University-Stanford University hybrid model.
First, explore the ranges of challenges facing society. Perhaps food security, child nutrition, access to information, or export promotion strike you as challenges facing society that interest you. Think hard about which challenge could keep you interested in helping to solve for the long-term. An entrepreneur must show restraint not to force their ideas into the challenge question too early.
Once you settle on a grand challenge facing your community, Kenya, the region, or the world, then begin to narrow down on several possible solutions to that specific challenge. Start formulating solutions not based on your own ideas sitting in your office, but rather go into the communities affected by the challenge and seek their ideas for solutions as your potential clients.
When first going into communities to find solutions, listen, observe, and decide if the community really suffers from the challenge or rather did the difficulty only exists in your mind as an unrealistic challenge. Then, ensure that you do not give them your ideas as biased possible solutions on the first visits. Just listen. If you give ideas into the community’s mind too early, you skew honest client feedback. Active listening and observation must occur first.
Next, begin to notice gaps in prospective client responses and your observations from the field. Do gaps exist where a logical solution might emerge? Research shows that an entrepreneur’s ability to notice gaps in the market holds critical keys to new business success. Based on your listening, observations, and gaps, build a small team to assist you to develop some possible solutions.
Serial entrepreneur Sam Gichuru says that start-ups succeed exponentially better when a team works together rather than an entrepreneur working alone. Here in Kenya, we often fear sharing our initial business ideas with a team for fear of someone stealing the idea. Many point to the conceptualisation phase of mobile money transfers as possible idea theft whereby the thought generator is theoretically lost and others gained.
However, ideas come by the bucketful. Real success occurs through implementation. So, relax, have others sign non-disclosure agreements, keep the team small, and hope for the best since you need others to succeed.
Now before constructing a prototype, take your solutions back to the community for feedback. Do not rely on family and friends’ biased feedback. Ask the actual prospective clients who do not know you as their input remains critical for your success throughout the process. Most entrepreneurs hubristically neglect client feedback until after a prototype and then ask the wrong questions.
Ask communities general demographic questions first about age and occupation and so forth, then enter questions related to the challenge itself, their use of competitive products, and then finally provide your ideas for your solution to their challenge.
Even entrepreneurs who follow the client-first approach often ask misleading questions, such as “you like my product, right?” Do not allow yes or no or sympathy questions.
Ask open-ended questions such as “what methods have you used to solve the food security crisis in your area” for example. Then, regarding your product, ask questions based on a seven-point scale: “On a scale of one to seven, how would you rank the usefulness of the proposed product?”
Make one equal “extremely dissatisfied”, then two “dissatisfied”, all the way up to seven as “extremely satisfied” with four as “neither satisfied or dissatisfied”. Asking clients questions with such ranges provides a wonderful depth of knowledge over yes or no questions. Clients who answer four in such a range may have answered a yes or no question with a “yes”, but would not have enthusiastically purchased your product solution.
Now, given all your feedback received, develop the prototype product. In developing your prototype, start with the requirements needed, move on to the design, and then implement it. In short, involve unbiased client feedback before, during, and after product development or risk becoming Kenya’s latest business startup failure statistic.