The key elements of a successful start-up


Date: 11 December 2017

The key elements of a successful start-upThere's no doubt about it. Getting a start-up off the ground and turning it into a successful enterprise is a difficult task. And it's one that few achieve. There have been some success stories over the past ten years or so that start-ups can learn from, however.

Tech companies, in particular, have impressed, disrupting one industry after another. A number of internet-based firms have made life easier for fellow businesses, such as project management software company Wrike. Founded in 2006, the award-winning software has helped numerous businesses streamline their workflow, enabling them to concentrate on their core tasks.

Like Wrike, every start-up that has carved its own success story features two common elements.

1. A product or service that the market is crying out for

Finding a gap in the market or a solution to a problem is the first step for any start-up. The best business model in the world can't make up for a poorly-designed product that doesn't fit a need. The best way to ascertain whether it achieves this or not is to take it to market. An effective means of gauging interest is to begin by marketing it to a test group and monitoring how well it is performing among users.

Having users test your product is also the quickest way of finding out if the product or service is viable. If it isn't, the start-up may need to pivot, and possibly pivot again, before applying an aggressive market push.

2. A suitable business model

Start-ups attract venture capital funding largely based on their potential to create a successful and scalable business; this requires the marriage of a marketable product and a business model capable of meeting the needs of the customer while maximising profit. Creating a viable business model requires as much attention as designing the perfect product. When they come together, the business has a good chance of success - but the hard work is just beginning.

Customer lifetime value

The lifetime value of a customer needs to be over and above the cost of acquisition, along with any marginal service/material costs. The lower the marginal costs, the easier this is to achieve. Most traditional software has either zero or negligible cost associated with it. When it is low, you have good cash surplus and can spend more on customer acquisition. Conversely, if your margin costs are greater than the customer's lifetime value, the business won't survive, no matter how great the product or service.

If you have a marketable product and profitable business economics in place, you then need to work out your customer acquisition channels. If you are looking for venture capital, this is especially important. Investors are looking for businesses with the potential to scale their customer acquisition opportunities.

When you have all of this in place, you will need to continue fine-tuning to reduce marginal costs and increase conversion rates. This will enable further profitable customer acquisition channels.

A workable business model

Wrike's business model is based around a multiple-tier offering. It's ideal for start-ups as they can adhere to a bootstrapping plan by taking advantage of the free option, gradually building up to more advanced levels as they expand their business. The freemium model has become a popular one in recent years, with a number of tech companies, such as Hootsuite and Hotjar, employing a similar model.

The ideal start-up

The ideal start-up is one where the offering answers a vital need for a sizeable, definable market, there are zero marginal costs, users have a high average lifetime value and there are opportunities to scale up customer acquisition channels at no cost. It's an ambitious target, of course, but it's an ideal to strive towards.

Featured post made possible by Wrike. Copyright © 2017.