The last LBAN Lunch and Contribute was the occasion to share different learnings and experiences on the subject of startup failures. During this “online” lunch conversation, LBAN Members exchanged their views but mostly their best practices.
"Failures are usually due to several reasons (not only one)"
Lack of Product-market fit was often cited which manifested itself as
- Lack of traction in the target market
- Lack of funding due to lack of traction
Time to market was either too early or the complexity was under estimated. The time to market is a critical factor. A disruptive idea usually takes a lot longer to be accepted by the market and thus additional cash flow is needed to maintain the business until the market is ready to switch.
LBAN members also talked about competition. Even with a well thought through business plan, an excellent team and a good operational model, startups face accrued competition due to globalised markets early on. Thus, a thorough competitive analysis is needed whereby other startups have to be taken into account and not only existing competitors.
Other startups with similar ideas may have access to more funding through their networks and thus outfinance local startups in the medium run.
Finally, members exchanged experiences on fraud and regulatory problems.
Fraud was discussed as being usually person based. Examples given were people defrauding the company, holding back information on purpose or using their contacts to steal money.
From a regulatory point of view, companies not anticipating regulatory changes were discussed as well as costs associated with compliance issues.
As a conclusion, the members discussed their findings and found these 4 best practices important to avoid startup failures:
1. Only invest into 3-5 companies during a calendar year (which need active help)
2. As the team is so important, background check the main stakeholders in the company
3. Have a direct line with the founders by forcing them to communicate with you on a monthly basis.
4. Make sure you have an excellent view on compliance in highly regulated industries.
Thank you to all the participants: Dara, Larissa, Monique, Damien, Eric, Michael, Michel, Michel, Stephan, Stéphane & Xavier and Larissa for moderating the discussion.
Sonia Franck