Inspire

Common startup issues

Written by Razif Abdul Aziz, COO of Cradle Fund & Executive Director of The Malaysian Business Angel Network (MBAN)

 

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The startup scene has come a long way, thanks in part to the breadth of support available and the quality of the field. There are, however, key issues plaguing our startups that are worth dwelling on.

ONE OF the things that have become routine for me at the Malaysian Business Angel Network (MBAN) is the monthly Angels in the City pitch session.

An exclusive by-invite-only event held on the last Friday of every month, it is slowly establishing itself as a key fixture in the early stage funding eco-system in Malaysia.

Since its modest first session in May 2015 attended by some 20-odd people, attendance has swelled to 70. Attendees comprise the “usual suspects”, ranging from MBANs angel investors and early stage VCs, to family offices and high net worth individuals (HNWIs), to a smattering of large local corporates like Digi, local banks and government agencies.

MBAN’s sole full time employee, Hisham, gets the ball rolling by first reaching out to all key partners, including Cradle Fund, Platcom Ventures, MAGIC, all six Equity Crowd Funding (ECF) Platforms and requesting that they send the latest list of startups.

These startups are then invited to attend a “pitch prep” session where they present to a small panel of MBAN Council members who assess their suitability and readiness for the actual pitch day. While we use the prep sessions primarily as a filter (only five to seven companies are shortlisted), it also serves to provide feedback to the entrepreneurs on their startup as well as their pitch. which needs to comply with the “5 and 10” format (5-minute pitch and 10-minute Q&A).

My experience sitting in these prep sessions have been enormously rewarding, as I am privy to the “best of the best” in the Malaysian startup ecosystem.

For the most part, the startups that have been through our doors (117 at last count) have been of good quality, pitch well (some really well) and have always been passionate about what they do — a testament to our partners’ good work as well as the improving nature of startups today.

Most have learnt from those that had gone before them and are products of the significant breadth of support available in the startup eco-system today.

The prep sessions have also been rewarding in that they have provided me with an insight into some key issues that continue to plague our startups. Here’s a list that I would like to share. Let’s call them “common startup issues”.

Issue #1: Customer acquisition and retention. It seems to plague even the best and most prepared founder. It revolves around the startup’s strategy to acquire and retain customers, as well as the related question of costs associated. If ever there was a question that most startups fail or struggle with, it’s this one.

Most will not have a clue, while others will guess at the number. Neither is acceptable to investors.

Issue #2: Valuation. Those that follow the popular “structured reality show” Shark Tank know how brutal the sharks can be when they are presented with a valuation number that is unreasonable. This is especially so when the startup has very little to show in terms of “traction”, say in the form of revenue, downloads or anything that demonstrates that they are on the cusp of significant growth.

While MBANs pitch sessions tend to be less brutal, it’s no less forthright as investors will not shy away from telling entrepreneurs exactly how they feel if valuations are way off.

There seems to be a general consensus among local investors that valuations of late have just gone a little bit north of what’s acceptable. While there are those who can back up the numbers with credible claims of positive traction, startups in general need to dial back their expectations or risk being passed over in a competitive market. Let’s watch this space.

Issue #3: The ability to execute. This is especially the case if the startup is proposing a fairly complex business model or plans to expand beyond Malaysia. This is fertile ground for a skeptical investor who will start to pick apart the strategy. The fact that execution is driven or at least linked to various things ranging from resources, human capital, human behaviour and a fair amount of good fortune only makes this more challenging.

A startup’s ability to execute well is a key success factor. Investors will be looking out for comprehensive and robust plans of action to achieve them.

Issue #4: Customer experience. Too little attention is put on this. In a day and age where nothing is ever new anymore and products or services are easily duplicated, copied or rehashed, I believe much will hinge on customer experience because it is something a startup can own and be made into a significant barrier to entry for others.

Issue #5: Validation or the lack of it. While the startups we see are of good quality, this most basic of issues sometimes still gets overlooked. I believe this is usually because entrepreneurs get easily blinded by their passion for their product or service to the point that it becomes difficult for them to remain objective.

Test the product or service objectively. Will people need this? Will people pay for this? This seems simple enough but I still see startups fail this most simple of tests.

Issue #6: Revenue. This is a personal view that may run counter to conventional wisdom in this space. In my humble opinion, given the current market — economic uncertainties, an increasingly competitive and crowded space, etc — entrepreneurs should structure their startup to achieve revenue and perhaps even profit as early as possible.

In tandem with the above, I also believe startups should scale incrementally as they build resources, experience and expertise. I think this is a more sustainable and realistic approach as opposed to one that is purely focused on scaling at all costs. I can almost hear the dissenters in the background and they have their points. But time will tell, I guess.

I write the foregoing with due respect to the many founders and entrepreneurs that I have met. They are all awesome in my book simply because they dared to dream the entrepreneurial dream. I continue to be bowled over by their sheer enthusiasm and chutzpah, and I believe they represent what is best about Malaysia today.

 

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Razif Abdul Aziz is Chief Operations Officer of Cradle Fund Sdn Bhd and Executive Director of The Malaysian Business Angel Network (MBAN)

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