“Holes” of startups: the most common problems of young companies that hinder their development

    Every month, the Internet Initiatives Development Fund holds events for entrepreneurs called “Business Secrets”. At these meetings, the leaders of the startup industry share with the audience the secrets of increasing the profit of the project and give advice on its promotion. Such events for their participants are not only useful, but also free - you just need to register and come to a meeting in our multimedia conference hall City Hall in the BC Silver City.

    In October, at one of these events, Artyom Azevich, head of IIDF tracking, spoke about the “holes” of startups or “bottlenecks” that need to be closed to improve their business performance by several times. This material based on the presentation, supplemented by project cases, talks about the stages of development of an IT startup at an early stage and the most common problems of entrepreneurs that prevent them from starting to earn money. Why is this happening?

    Let us give a visual comparison with a physical object. If you imagine a business in the form of a pipe, then at the entrance to this pipe are users, and at the exit, money. At the same time, traffic in the form of users is usually a lot, but as a result there is little money, one out of a hundred pays. Roughly speaking, many holes appear inside the pipe: people leave the first page of the site, from the payment page, and so on. The entrepreneur creates pressure in the pipe (“catches up with traffic”) and observes, due to which the number of users decreases at the exit (in fact, analyzes the conversion rate). The entrepreneur must track the “bottlenecks” or “holes” of the pipe, in which most users fall off. It is about them that the speech will be discussed in the material, the key to a profitable business lies in them.

    IIDF Accelerator Methodology

    What is the most common reason startups close?

    Startups answer this question in different ways:

    - something went wrong;
    - the product is not good enough;
    - there was not enough PR;
    - the founders could not reach the decision maker (decision maker);
    - bad team, etc.

    In fact, all businesses are closed for one reason - due to the lack of a paying customer .

    Over the course of the Accelerator’s work, its experts have not yet met a single business that closed due to a poor product, code or interface, but an entire “death valley” has already formed from businesses that have failed to attract paying customers. If the company does not make money, the team becomes disillusioned with the product, runs up, and the project is closed.

    As part of the methodology, the IIDF developed a phased business development plan for companies — a certain road map or Road Map: what does an entrepreneur need to do to get seed investments and scale the business. This is a critical chain of actions that allows you to build a successful earning business as soon as possible.

    After analyzing the activities of any startup, you can determine at what stage of this path he is. The first big stage is Customer Discovery , when we look for customers, communicate with them and study them. It ends with the first sales - this is a turning point in the development of a young company. The second big step is Channel Testing.when we learn to attract customers from sales channels and reduce the unit-economics of the project. In other words, we strive to ensure that the income that a company brings to a company is more than the cost of attracting it . It is very important for the investor to determine which stage the project is at. There is a very simple question to do this:

    “Do you have paying customers and how many are there?”

    A massive mistake of startups is to go to channels and pump up traffic until the first manual sales are completed. It is ineffective. Typically, such projects have insanely low conversions, but they cannot explain why. Without communicating with a large number of customers, projects will not be able to figure out how to increase conversion to paying users.

    At the stage of Customer Development, most projects have “holes” in the same places, which are the reason for the low conversion.

    Mass problems of companies at the initial stage of development

    1. Value not confirmed

    At the first stage, it is very important to confirm the value of the product or service, it is proved by the first paying customers. Most projects lack or have a very obscure value. When the value of the product is not confirmed, it is unclear whether people are willing to pay for the decision. And this is the main condition for a startup to conditionally be considered promising. If customers do not buy, it is worth trying to reformulate the value proposition, change the addressee of this message, or even change the concept of the project.

    Case study project Wowworks

    This is a project from the third set of the IIDF Accelerator. What was the essence of the project at the beginning of acceleration? Suppose a company has a remote branch or a store where a light bulb burns out, a computer, printer, etc. breaks down, but there is no one to fix it, or it is expensive. Wowworks founders came to the heads of the IT department or the managers of the company's premises, described the problem and offered to find a specialist on the spot - right in the city where the remote branch is located, and these services are cheap. Firstly, the issues of economy were not always interesting for these managers, and secondly, they did not want to change their debugged business processes. As a result, the project went to pivot (business model reversal). In the new version of Wowworks, the founders came to the CEOs and wondered if they knew What happens in remote branches? Does the condition of the premises correspond to the brand book, do employees work efficiently, does nothing break?Wowworks offered to supply secret customers there, who will draw up a checklist: do plumbing work, do light bulbs, etc., and then find specialists to solve these problems. It was important here that it was the CEOs who were more interested in saving. The project changed the value proposition, and the conversion increased significantly.

    Accordingly, business indicators also increased.

    Before and after Acceleration:

    2. No customer portraits

    Let's say the team has a task - to increase the flow of users. They either solve it themselves, or contact the agency. In turn, agency employees ask the team: describe your client, what problems and features he has, why does he buy your product? This information is needed for marketers to target ads and other channels to drive traffic to the right audience.

    Most of the teams do not know the answers to these questions and can not cope with the task of increasing traffic and attracting the target audience. When compiling a customer profile, only a socio-demographic description is not enough. It is necessary to highlight behavioral patterns (for example, to describe the situation that should happen to a person so that he drives the necessary keywords into the search bar and goes to your site with a contextual advertisement). Details on how to create a portrait of a client and how to use it later can be found in the article by the IIDF tracker Gleb Tertychny about one of the prototyping methods.

    Case of the project “Just a razor club”

    In the first set of the Accelerator of IIDF was the project “ Just a razor club»- razors for subscription with delivery. The product is simple and understandable in general, and the team had a fairly clear understanding of the end user, with his age and features, but it was incomplete. The portrait of the consumer of the product was quite accurate: an unshaven man of 20-35 years old who uses the Internet. Too many people fit that description, but that wasn't the problem. Firstly, the portrait was made without taking into account specific situations when such a person would buy a razor through the Internet. Secondly, after analyzing consumers, it turned out that razors are bought through the Internet, including women, for their men, as a gift. It was worth considering that the product may not necessarily be the one who will use it. Having studied its target audience and behavioral patterns of both types of clients, the project received the following picture:

    The study of portraits of both types of customers and their behavioral patterns has led to the fact that according to the results of Acceleration, the conversion to purchase increased 2.5 times.

    3. No selling arguments

    Drawing up a portrait of a customer is not enough; you need to try to sell the product to him manually and identify the arguments for the purchase, which are most significant for the customer. Each consumer has doubts when making a purchase decision, and you need to understand what kind of advantage your product or service may affect the customer, and when selling, give these reasons. To do this, Customer Development is needed - without talking to the client, the entrepreneur will not find out with what thought the user came to the site, and what exactly affects his purchase decision most of all.

    Case of the Unim Histology project The

    services that this project provides from the third set of the IIDF Accelerator are generally quite difficult to describe: Unim Histologystruggling with making incorrect diagnoses in the field of oncology in the regions of Russia, sending biopsy materials to a high-tech laboratory for histological analysis in a short time. At the beginning of Acceleration, the project described itself as follows:

    From this value proposition, it was generally unclear what the project was doing.

    When selling, the team spoke of histological analyzes, which in themselves are not a value. In the process of acceleration, the wording changed: now, instead of an analysis tool, the company sells the result - an oncological diagnosis or an accurate reliable diagnosis in a short time without the need to go somewhere. What arguments does the project use when selling services?

    Firstly, the majority of the company's clients are cancer suspected patients who live in one of the regions of Russia where there are not enough specialists and they need to go to Moscow or abroad to make a diagnosis. Therefore, the first argument when selling from Unim Histology is remoteness - the courier delivers the materials for analysis to the laboratory, but the patient does not need to go anywhere.

    Secondly, most often with suspected cancer, the timing of the diagnosis is very important in order to prescribe the correct treatment. In the regions, analyzes can only be ready in a month or two, so the second argument when selling at Unim Histology is urgency: the tests are prepared in 2-3 days.

    The third argument, perhaps the most important, is the reliability, accuracy of the diagnosis. The most frequently asked question by Unim Histology employees is why can the laboratory where the company sends the materials for analysis be trusted? Here, the company talks about high-tech equipment that laboratories in the regions do not have, highly qualified doctors, and an automated diagnosis process. The probability of making an erroneous diagnosis in the laboratory D. Rogacheva is close to zero, since all the material received for analysis by doctors is watched collectively, thus, the factor of subjectivity disappears.

    For three months of acceleration, the cost of attracting a paying user decreased by more than 2 times, and the company's revenue grew 4 times.

    How many sales do you need to go on channel testing?

    The accelerator FRII believe that when determining the number of sales that are needed to confirm the effective demand, a start needs from the average check. If your average check is less than $ 500, then the number of sales you need to make is 200. If you have reached 200 sales, then you can say that the product value is confirmed, you have found your client segment and you can proceed to “pump” the channel with money. For a business with an average check from $ 500 to $ 20 thousand, the required number of sales is from 30 to 70. If the check exceeds $ 20 thousand, then only 5 sales are needed.

    We hope that the above methods of working with a startup at an early stage of development and examples of our projects will help you avoid mistakes and correctly formulate a value proposition for your product. Without a clear statement of product value, it will be very difficult to grow a startup into a large company.

    Only registered users can participate in the survey. Please come in.

    Do you think it is worth using this methodology when developing a business?

    • 22% Yes, from my own experience or the example of colleagues I was convinced that it is effective 40
    • 58.5% I think so, but have not yet seen confirmation of this 106
    • 12.7% Not sure if this is useful 23
    • 6.6% No, I think it is ineffective 12

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