Why do Start-ups fail and succeed?

I thought I would look at some reasons why Start-ups fail or succeed and provide some practical insights which can be used by both Start-ups and more established Companies. I will use some examples from the Food Tech Sector.

The Food Tech Sector is hot and spicy. Lots of budding companies. There was big Exhibition in Israel held last year - https://www.foodtechil.com/ in which over 50 food Start-ups Exhibited.

I myself have come across a few Food Tech Companies. I wrote about my experience at a Conference in London in the summer of 2019 , where I met quite a few players in the Food Industry. “FoodTech is now a hot dish on the Israeli innovation menu. One Company attracting at the conference was Future Meat https://www.future-meat.com/. with all the hype surrounding the listing of Beyond Meat who saw it $25 IPO price of the stock tripled within three days, for a value of 4.4 billion. “Future Meat Technologies is a Jerusalem-based biotechnology company aiming to transform global meat production through distributive manufacturing of fat and muscle cells, increasing food safety and reducing ecological impact worldwide. We aim to turn the timeless vision of animal-free meat production into a reality. Our cutting-edge cellular agriculture technology was developed by award-winning biologists and bioengineers and brought into reality by world-renowned innovative chefs at Jerusalem’s singular culinary scene.” In today’s, Environmental aware world, where there are huge resources going into the grazing of animals, and inhumane treatment of Animals – this is really the future frontier”

Since then, Future Meat raised $13m


Raising money is not is a sign that the Company will succeed. I can testify to this from my days as CFO of STI Ventures, A high Tech Fund backed by Comverse, Softbank and other leading Investors. Most of the Investments were not a success and most of the VC’s that we Invested in including many of the leading Israeli VC’s from the Dot. com age were not successful. This was not necessary the result of bad Management , but investinmg too early, or not exiting in the correct time or bad timing i.e. the 2000, dot com crash or in more contemporary terms the Corona Virus.

However, quite a few Companies fail due their own failings.

For example, there was or is a Company http://www.gojifoodsolutions.com/. On their website they claim: Using a solid-state energy source, RF cooking allows for the first time a high degree of control on rapid energy transfer to food products. This new technology is based on digital high-power RF components capable of modifying the frequency, amplitude and phase of radio waves transmitted in ovens. This Company has been around for a while , so I googled how I can buy a product. No success. Last update on their website 2018. I remember going there for an Interview to be the CFO quite a few years ago. I never got the job. Anyway, their loss as a CFO is not just number cruncher, but a key advisor in Strategy and Execution , and having my share of involvement with Business failures (and a few successes) in a wide range of industries , I could have helped.

So, based on some of my Life Lessons, let’s explore some reasons for success or failures.

1. Arrogance or over confidence

Let’s put in differently, Founders need to realistic about their prospects and plan accordingly.

They need to consider:

a. Product Validation – Does it Work

b. Competitors – current and future

c. User Acceptance – why would users need or want their Product - must have or nice?

d. Pricing

e. Route to Market

f. Choose a team with proven Market / Product Experience.

g. And more

2. VC Investors do not always get in right

Just look at SoftBank. I love the way they call the We Work Investment a “Bet”. What the Fu...!! Is Investing just a roll of the dice, a hunch?

3. Being first to Market does mean you will win the race

Being a late starter has its advantage – learn from their Mistakes and piggyback on their Market Penetration. This pattern repeats itself in different sectors e.g. ICQ by Yossi Vardi did not imply that there solution would meet the test of time . Anther Ventures of his R-U-Sure Ltd, one of the Internet’s earliest online comparison shopping engines did not succeed. Today, with Ai and Machine learning one very clearly needs to consider the emerging tech that competition could use to outsmart your offering.

4. Collaboration and Joint Ventures

It always amazes me how you have different start-ups with similar end customers / users do not co-operate on Marketing, Sales and Distribution. I remember from my youth the wholesalers who come to my Dad’s Hardware store with a catalogue of different suppliers. Definitely an area for more thought.

5. Distribution

Is a big one in the food sector. Customer acquisition is not easy. Relaiance on 1-3 customers is a recipe for disaster.

6. Branding

In the Food sector this is important. There are very new Names, new products on the Shelves. Retail Stores and Consumers do not embrace change . How often are there Fads – Green Tomato Sauce by Osem which was a big failure. Social media can be a very testing ground for new products. Get a community of foodies to love and promote the product. I also came across of lot of specialists who could assist.

7. Health and Safety

Is a Biggy in the food Industry. And a big Barrier of Entry. For other sectors this can include Regulation, Compliance, AML, KYC and GDRP.

8. Trying to sell something new – could be a hit and miss .

Take for example https://innovopro.com/

InnovoPro has developed a technology designed to extract a 70-percent-chickpea protein concentrate, which offers a sustainable, healthy, affordable, and non-GMO source of plant-based protein. InnovoPro's technology harnesses a biotechnological process that yields new products, generating not only chickpea protein, but also protein hydrolysate, fibers, and starch, all of which can be used in a wide range of food applications. InnovPro have raised In December 2018 , $4.25 million in a financing round led by Swiss retail food company Migros and Erel Margalit, founder and chairman of Jerusalem Venture Partners

This sounds delicious – anybody buying this? Most likely they are trying to replace Soya, and maybe this is healthier. What about taste, texture and price ?

Let’s wait and see how they do?

9. Pricing

Let’s look at Future Meat. I quote from the Globes article when they raised $14m.

Future Meat Technologies’ groundbreaking process utilizes the rapid growth of connective tissue cells, called fibroblasts, to reach high densities before turning the cells to cultured muscle and healthy fats. The company aims to introduce hybrid products - combining plant proteins for texture and cultured fats that create the distinct aroma and flavour of meat. With current small-scale production costs of $150 per pound of chicken and $200 per pound of beef, Future Meat Technologies plans to release its hybrid products at a competitive cost level from its pilot production facility by 2021 and launch a second line of 100% cultured meat products at a cost of less than $10 per pound by 2022.

So, they are aiming to get their production costs down to say $20 per Kg, and let’s add ap distribution and mark-up which puts the retail price to $40 per Kg which is way more than real deal.

Looking at the Goji example as above, the first generation of ovens based on its technology will cost at least as much as existing top-of-the-line conventional ovens, around US $5,000 or more. This then places the Cost in luxury market , which is not high Volume. Easy to look in hindsight, and say that despite having say a superior product, the Business would need to sell high volume of Ovens which is not realistic and their business model a no starter. Also, Revenue was not recurring (i.e. annual service charge) , and this factor is a weak financial model to base a Business on.

10. IP Protection, Copying

Having worked in a Hitech Start-up (which was a leading product in the early 90’s in the plumbing and underfloor heating market) before the word Hitech was invested whose product despite having a good Patent Program, was copied by and Stolen by its Partners , licensees. Business is dirty. The less said the better.

11. Competition

Just in case you thought I have not worked in the Food Industry; I want to share an experience of working for Sucden – the large French Group who opened a distribution of Sugar in Israel. (How many jobs did this guy have?) In those days (mid 90’s) there were 3-4 main Players in the market, and through choosing the correct Salesperson, Pricing and distribution we managed to break into the Market over a two-year period. Until we were pushed out by pricing, and dodgy players who did not pay the goods.

12. Financials – Budgeting & realistic Forecasts

In todays world having $5m to $15m does not get a Company very far. It sounds like a lot , but when you add the costs of Overhead , R&D , Marketing , Legal & professional, Patents and take into time to Market it does not go very far.

Ok, I am making a Pitch here – Choose your CFO carefully. Choose somebody who has learnt from the hard knocks of life. Life, Business is not easy. There are a lot of surprises. We do not need a reminder anymore – look at the effect of Covid-19. Who saw that coming?

In these trying times, choosing the right CFO can make or break the Company. And it does not cost an arm and a leg, this can be part time. A good CFO can assist with strategy, set policy, put in Budgets , Control and efficient Accounting solutions/ systems saving the Company time and money.

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