While there are more than 500 unicorn companies with a valuation over $1 billion, the stark reality is that close to 90% of startups fail, with many closing even before they’ve finished developing a product. Clearly, it takes more than a good idea to build a winning business, but this still begs the question, why do so many startups fail? And, most importantly, what can be done to improve the odds of success?
From my experience, it all begins with the team. When startups begin, they typically have limited funding, time and other resources at their disposal. They simply can’t afford excess spending or missteps.
All too often, entrepreneurs approach their startup as if it was an established business. But successful startups need to quickly scale, demonstrate value to investors and disrupt the status quo. This is why new service models for lean development, or “Flexible R&D,” are rapidly growing in popularity and proving their value in the startup space.
The case for starting off smart
Most startups, especially tech companies developing software and IoT solutions, require a wide range of highly skilled professionals to develop products. These experts range from product managers, through UI/UX and graphic designers to software architects, back-end and front-end developers of various types, database specialists, QA managers, DevOps engineers and more.
Failure to strategically staff a team can quickly expend budgets without demonstrable results. It’s an all-too-common pitfall for startups – whether they’re recruiting development staff full-time or using fixed-term staff via outsourcing services, both can be inefficient.
The simple fact is, not all employees are needed at the same intensity 100% of the time during development, and the recruitment process is time-consuming and expensive. Adding to this, employee retention can bring astronomical fixed costs for salaries, equipment and even real estate. How much of this is truly necessary?
The costs of burning seed investments during recruitment
In many cases, capital raised in the first round of funding runs out rapidly, causing entrepreneurs to abruptly stop the train shortly after it has left the station.
If a next round of funding takes longer than expected and a startup has already amassed a large workforce (and the associated costs), management may have no choice but to layoff employees. Not only is this unpleasant, but it also projects poorly on the venture and may limit efforts to secure additional funding down the road.
When funds run short, many entrepreneurs and startups find themselves facing impatient investors, who want to make the most out of their investment, even at the cost of steamrolling the startup and a new management takeover. This is a lose-lose situation for everyone.
Beating the odds with a flexible, highly efficient approach
For any startup, but particularly those that have raised around $5 million or less, a lean and flexible approach can ensure it does not exceed its budget before the next funding round, or before the company reaches maturity and revenue. At this stage, all that is truly required is a high-functioning core team of just three people:
- The business leader, who is initially responsible for raising funds and then, later, engaging customers and developing partner collaborations
- The product lead, who manages market analysis and pinpoints the exact challenges and needs that product should address and solve
- The VP of Technology, who is responsible for planning and orchestrating product development
Beyond these three core parties, startups can maximize their resources by tapping into development services that are highly scalable and cost-efficient. Using a flexible approach to R&D, many startups can save significantly by connecting with companies that specialize in offering multidisciplinary development services via an on-demand, or cloud-like model. And with the rise of virtual collaboration, startups gain immediate and cost-effective access to the best talent around the world, regardless of location.
This cloud-like services model, otherwise known as Flexible R&D, enables entrepreneurs to allocate resources based on actual needs, both regarding skillsets and the actual number of professionals required at one time. By following this approach, startups can gain full flexibility and budgetary control over R&D staffing throughout a project, and require fewer compromises to achieve their goal of launching a final product.
Unlocking innovation with flexibility
Startups looking to increase their chances of success must control spending, and the best way to do this is by controlling the most important resource: expert teams, both in quantity and skillset. By providing a new level of efficiency, Flexible R&D and cloud-like development service models can tap into powerful new innovations and transformative technology like the IoT, AI, Big Data and more, without breaking the bank.
Max Nirenberg is the Chief Revenue Officer and Managing Director for North America for Commit USA, where he leads and optimizes Commit’s growing international organization, while overseeing strategic planning for the global account management teams and ensuring the company’s innovative and unparalleled delivery capabilities meet the US market needs. Nirenberg brings more than 20 years of management experience to Commit USA, with a strong specialty in SaaS and tech services. Previously, he served as the global Chief Sales Officer for the world’s largest independent pure-play quality assurance company, Qualitest.