What happens when a start-up goes bust after customers have come to rely on it?
We hear about proper exit strategies from a business, but not a customer, perspective
I RECEIVED some great feedback after writing about the plight of consumer-facing start-ups needing some love from their own countrymen in my last column.
One commentator, in particular, highlighted the flip side of this coin on Facebook: What happens when a start-up with a great product goes bust a few years down the line after customers have come to rely on it?
The commenter was Vijandren Ramadass, founder of Lowyat.NET, and as the man behind one of the most popular portals and forums in the country, he knows a thing or two about growing a business.
A great service or product that is truly helpful is not the only factor essential to a company’s long-term success and what Vijandren pointed out is a very valid point.
As Vijandren notes: “It’s not about the lack of support from consumers, it’s more down to the competition between well-funded, profit-seeking start-ups versus badly-funded sustainable start-ups.”
According to Vijandren, achieving critical mass among local users takes time, and the reluctance usually stems from a bad experience in the past with similar providers.
Most of the providers that have come along in the last 10 years or so either had solid investment backing and couldn’t generate profit as fast as they liked and pulled the plug, or were those that had little to no funding, but were built on a sustainable model only to have to pull the plug for not having enough financial backing to wait for the critical mass to be convinced to come in.
“Malaysians generally take a longer time then the average consumer to jump on a bandwagon. You can’t blame the consumer either. If I give a try to one, and then another local product provider, only to see them go bust in a couple of years, I would be very skeptical in trying out a third provider unless I know that it is going to be around five years down the road,” he added.
The oft-chanted mantra uttered to new entrepreneurs by those who ply their trade in the start-up space is “launch or die.”
Better to have a service out there in the world than sitting as a mere sketch on a piece of paper. It is also the fastest way to find out if something will work or not in the open market, and to respond accordingly as a business before things get too entrenched.
But start-ups are born for a reason, with a solution in mind or hand to address a real problem, so it is reasonable to assume that someone will need or want what you have.
Which brings me to the message of today’s column: Start-ups should devote some time to thinking about the exit strategy for customers. A great product can still disappear from the market when issues behind the scenes with a company’s founders, investors or employees reach a critical stage.
Much has been said about having a proper exit strategy from a business perspective when the time to sell comes a-knocking.
Issues such as the future of employees, handover timelines, percentage of shares and value of the current user base are usually taken into account, but rarely do we hear about customer consideration.
In cases where the company goes bust and can’t find a willing investor or buyer, then a communications and transition plan for existing customers must be considered and executed.
For those in a position to sell, don’t just look at the amount offered and think about the buyer and also whether or not their values and vision forward would be complementary to what your users have come to expect — at least in the beginning anyway.
Your customers gave you goodwill by taking a chance on your product, especially for those who have found it indispensable, and some goodwill on your part is quid pro quo.
But of course, no start-up sets out with failure in mind.
For those dedicated to the long haul, convinced that their offering has a place and future in the market, Vijandren advises founders to focus on building a sustainable model for the business, without having to actually use it as their only source of income.
“Unlike in the United States where there are plenty of angel investors and corporations willing to throw cash at good ideas, there isn’t much of that here.
“In Malaysia you’ve got to adapt, start small and build from there. Make sure the financial model doesn’t require a profit within the first two years and it might work,” he said.
Despite the observation that Malaysian consumers are slower to jump on any bandwagon, preferring to wait and assess a product’s longer-term viability, don’t be disheartened.
If the feedback I received is any indication, there are many out there who do indeed open up some space in their digital lives for the offerings of local start-ups.
One commenter on Facebook had this to say: “I beta-test and use local apps or platforms quite frequently, mainly because they adequately serve a localized demand or need, but it’s tough to get anyone (me included) to be loyal to an app or platform on any other basis other than that it remains useful to the user.
“As with any product or service, customer satisfaction remains the top, if not only, priority.”
And I agree, customer loyalty should be earned and not granted purely on the basis of patriotism. To hold our own start-ups against the standards set by a global marketplace makes for a more robust test of a products viability and sustainability.
To quote Vijandren again: “The Malaysian consumer is a forgiving lot, so start-ups should not worry about spending all their cash on making sure everything is perfect before going public.
“Go to them with something basic, and they will be willing beta testers to help you grow. It also generates a kind of loyalty that you don’t get from massive ads or marketing campaigns.”
This column originally appeared in the Metro Biz section of The Star and is reprinted here with its kind permission.
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