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With the retail industry experiencing unprecedented change, many organizations are challenged to keep up the pace of innovation. This is too often made harder due to installed, budget-consuming legacy technologies that are obstacles to adoption.

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Blog WhyStartupsFail

Why Do Retail Technology Startups Often Fail?

Over the past few years, we have seen the unfortunate demise of too many startups, with promising technologies focused on the Retail Industry. Sometimes the failure of these startups happens fast and sometimes it is tortuously slow. Regardless of the pace, these unwelcome deaths of early-stage companies can leave a wake of disappointment with the entrepreneurs who launched the business, their trusting investors, and the retailers who also took a chance on them.

Why do so many of these promising companies fail? Obviously, there is more than one reason, but it is very clear that a few common mistakes account for most of the casualties.   Let’s explore six of these mistakes below:

  1. The company builds a great product, but doesn’t understand how to sell that product successfully to the retailer. Even the most gifted entrepreneurs can underestimate how hard sales can be. They don’t appreciate that sales is a profession requiring trained, persuasive people.  Successful sales outcomes occur when you have someone who can successfully explain how the product can solve an area of pain; or help the client to capitalize on an opportunity. Engineers, accountants and sales professionals all have different skills and personalities. Underestimating the selling process, is always going to result in underwhelming revenue results and this will deprive the early stage company of the product sales generated cash necessary to further invest and grow.
  1. The company builds a terrible product, and it doesn’t measure up to the needs of clients. Poor functionality, performance, quality, and/or architecture kill even the best ideas. The market is very efficient about punishing solutions providers who offer products with inadequate functionality, poor quality, or operate on a less than ideal architecture. Retailers have become sophisticated and they rarely tolerate defects, performance problems, or solutions that don’t do the job.
  1. The company lacks the necessary capital to bring their solution to market. They never raise money or they run out of money and are forced to shutter.  Usually, the best source of working capital is, of course, selling your product. Doing so will generate revenue that can minimize the amount of investor capital required to scale the business.  If outside money is going to be raised, it is vital that the technology provider have a succinct and powerful pitch deck, and access to angels or venture capital firms who are enthused about the given technology. These potential investors won’t always have a deep understanding of the retail technology ecosystem and may need to be educated on its potential. They will also need to understand how they will secure a strong return on their investment. Entrepreneurs who don’t focus on creating a compelling investor-friendly story to support their solution often run out of capital long before their company and product vision can be realized.
  1. The company is hindered by the lack of an interface with an industry incumbent’s solution. Many times, the most innovative retail technology solutions have a dependency on integrating with the retailers merchandising or loyalty solution while others require integration with the enterprise software or with the point-of-sale system. The market is littered with the now defunct solution providers who failed to convince platform software companies to cooperate.  These installed systems may be provided by larger, more mature technology companies who avoid providing interfaces, or at least make them expensive and time-consuming to complete.  Delayed integration results in delayed revenue.
  1. The company lacks the right composition of talent and therefore associates are forced to become “jacks of all trades” even in job areas where they lack skills. Engineers trying to sell, accountants trying to do human resources, and salespeople trying to be CEOs are all illustrations of this. Additionally, startups also struggle with finding employees who can be entrepreneurial versus those who may come from mature companies with deeper benches and more specialization. The wrong talent at the wrong time can result in a bad outcome for the solution provider, its investors and the retailer.
  1. The company builds a great product, but doesn’t understand how to create awareness and generate demand for the new offering. Often these challenges are also combined with having the poor product messaging that is compelling for prospective customers. These are all marketing challenges and they must be solved with proper marketing techniques.

While there are other reasons why retail technology startups may fail, the six items highlighted are quite common.  Entrepreneurs, investors and retailers all need to watch for these symptoms in the companies that they care about. It is not enough to have a brilliant idea or even a great product. Successful startups will execute well and when they make mistakes, they will learn fast, and course correct.

© 2017 Transformational Retail Technologies, Inc.

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