I have known Noam and Maayan (aliases) for a few years now. This bright and extremely talented duo first approached me back when I was an attorney specializing in technology and entrepreneurship. They asked me to help them deal with one of those legal conundrums that every entrepreneur faces at a certain point. Noam and Maayan have background in design and engineering and both are passionate entrepreneurs.
Therefore, I did not think twice when they asked for a meeting last September in order to review their investment deck and provide feedback on their business.
Their idea was brilliant, they had managed to structure the problem they were solving very clearly and had their solution communicated in a very understandable way. However, Noam and Maayan fell short where many bright and innovative entrepreneurs had before them. Albeit having a great idea and an innovative solution, they lacked the business acumen required to translate their idea to economic and business models.
What do I mean?
The Problem of Solving a Problem
An idea, no matter how much potential it entails, must make business and economic sense in order to achieve said potential. Other stakeholders, specifically investors, would like to know that the team had made its economic calculations and made sure the business is worth their time and the risk is quantified and acceptable to them. The ability to translate an innovative idea into numbers and values is not an easy one. While many of us can come up with the most innovative ideas, only a small percentage of us will go on the extra mile of pursuing it, and an even smaller percentage will go the extra length of validating it (read more on validating an idea and a business in future posts).
The most important economic parts of a business model are the opportunity (how big is the pie?), the business model (how will I work to secure and increase my portion of that pie?) and the financial forecast/unit economics (will I be able to live and thrive on this portion of the pie?).
Noam and Maayan, despite being innovative and brilliant, had hardships translating their ideas into money.
The solution to this, another problems entrepreneurs encounter sounds relatively straightforward, right? Well think again.
So Why Are Entrepreneurs Still Failing?
Our research shows that many entrepreneurs are on the look for business assistance from accelerators, freelance advisors and consultancy firms (more on the different options available for entrepreneurs here). That’s because many early stage entrepreneurs understand they need help in structuring their businesses better and building stronger economic basis for their projects, and for a good reason:
According to a study by CB Insights tech market intelligence platform, the top five reasons for startups failure are: no market need for their product/service, running out of cash, not having the right team, getting out-competed and pricing/costing issues. The rest include having a product without having a business model, poor marketing, and ignoring the customers.
For example, cash burnout could be avoided by structuring the startup’s budget professionally, prioritizing the commercial efforts of the entrepreneurs and executing the project in a creative and lean method. Those skills are very specific and, according to our experience, not abundantly found among founders.
Another example is not having the right business model. As mentioned above, a business model is a part of the entire economic model of a project. This model starts by understanding and analyzing the opportunity and its value. This is not an easy task. A company whose target market is Spanish children under the age of 8 can easily find the raw number of the market.
However, structuring it in a TAM, SAM, SOM model, and giving it monetary values could be a bit trickier than it might look. This requires business acumen, financial understanding and strategic thinking, which could be gained by working with experienced business professional or with people that secured professional business education.
A sustainable business model should show how the founders intend to secure their portion of the
market, and should be straightforward to external view, simple and focused. While your venture can have several revenue streams, it is usually best focusing on 1-2 main ones. It shows that the founding team, while being innovative and farsighted, are also realistic and focused.
Finally, calculating the economic feasibility and forecast of the project shows that you have thought the entire process through and that you believe the outcome would be profitable. This can be done either by using financial forecasts (usually 3-5 years, more than that is usually unnecessary), or by using the model I like better – the unit economics (Customer LTV – (CaC+CoGS)). This shows how many units must be sold, or customers obtained for the entire project to be profitable.
Complicated? Not if you have access to the right knowledge and skills.
Funding? Apparently Not Your Biggest Issue Right Now.
BTW, in spite of what you might think, not being able to raise external financing was rated low on the list of reasons for startups failure (only 8% of failed startups mentioned this as one of the reasons for failure). What are the challenges early stage ventures face?
Analyzing the above information, you might come to the following conclusion – a good idea is simply not enough to have a great business and while the information above is open for view for every entrepreneur out there, we hardly see change in startup success rates. One reason might be that, like my friend from the story above, most entrepreneurs just don’t have the required knowledge, skills and contacts required to overcome these business challenges, yet alone professionally execute the approaches mentioned above.
Challenges. Lets Put It Straight.
The ability to ask your clients the right questions, choose the correct pricing and costs for your product/service, market your product/service correctly, and come up with a sustainable and viable business model require certain skills, expertise and connections that many entrepreneurs don’t possess They can solve this by trying to get a formal education, but this unfortunately takes a lot of time and money that most individuals can’t afford. Also in the competitive world we live in even a few month delay can allow another company with the right resources to take the idea to market. The result of all this is that many brilliant ideas fail because of wrong execution.
According to 2019 State of European Tech report published by Atomico in partnership with Slush and Orrick LLP, on average approx. 80% of founders responded to the survey underlying the report declared having at least bachelor’s degree. If we examine only those founders who have attained a university degree and got funded in Europe, an average of 40% have business and/or law degrees. This goes back to explain our initial statement about the resources required for the successful startup: skills, expertise and contacts.
The Xelera’s Mission – Providing All Entrepreneurs Equal Access To the Most Important Resources.
Xelera was established in order to change those numbers, and specifically the success rate. We believe that good ideas should not go to waste only due to the founder’s inability to access these resources. Hence, we have developed the world’s first Consulerator Network. Our mission is to provide Noam, Maayan and the likes of them with access to the know-how, skills, experience and connections they need to achieve their business goals and overcome their business related challenges.
Venturing the Xelera way
By building an extensive and diverse international network of highly skilled business professionals, Xelera aims at tailoring each and every one of our users with its very own business venturing suit based on the industry in which it operates, the skills of the founding team, the contacts they have and their target market. We achieve this by providing Maayan and Noam with the 2 specific Consulerators that will help them promote their business, develop it further, and connect them with relevant stakeholders, based on their own requirements and the characteristics of their project.
If you relate to what’s written here (either as an entrepreneur or as a friend or partner of such entrepreneur) you are welcome to check out our website (www.joinxelera.com) and contact us for more details. You can also register for an advisory call with one of our founders to discover how Xelera can help you out – no strings attached, want to join the new worldwide movement of Consulerating? Register and begin the process.