The startup failure rate is well-documented: about 50% of new small businesses close shop within fours years and 90% don’t live long enough to celebrate their tenth anniversary.
As an entrepreneur, it’s clear the odds a typical against the success of your startup.
What should you do? Abandon your dreams of launching a startup? No – giving up when a challenge arises isn’t in an entrepreneur’s DNA. You keep driving forward.
But, startups don’t fail out of the blue. There’s usually a combination of mistakes behind the failure.
In this article, we’re sharing the common startup mistakes you must avoid in your quest for success. Keep reading!
1. Your Idea Doesn’t Solve a (Real) Problem
One of the keys to starting a successful business is offering a product or service which solves a problem. Not just any problem – a real problem.
Just look at some of the successful startups around.
Take Uber, for instance. Even though it’s currently on a bumpy ride,doesn’t come easy, unless you’re doing something right. The company makes it easy to hail a taxi ride, a task that was previously taking far too long for millions of people.
What problem does your startup solve? Is it a problem facing millions of people? Is there another company offering a solution to the same problem?
These are some of the questions you must ask yourself before launching your startup.
Don’t make the mistake of stepping into the market if your product or service doesn’t solve any real problem, or is a duplicate or near-duplicate of what’s already on offer.
2. Failing to Partner Up
Larry Page, Google co-founder.
Mark Zuckerberg, Facebook co-founder.
Elon Musk, Tesla, SpaceX, and Neuralink co-founder.
Steve Jobs, Apple Inc. co-founder.
Are you seeing the pattern here? Most of the world’s biggest companies are a product of two or more founders.
While we’re not saying there aren’t any successful companies founded by one person (IBM is an example), you stand a strong chance of establishing a successful startup when you partner with other people.
When you’re a sole founder, you don’t have somebody with whom to fine tune your ideas. You’re far likely to make mistakes during the early stages, mistakes which could come to haunt your startup down the road.
Going solo can also be seen as a vote of no confidence in your ideas. In a marketplace where almost every new startup has two or more co-founders, potential investors can refuse to back your company. They might think “Look, this guy couldn’t even get a close friend to partner with, perhaps because no one else believes in them.”
While sole proprietor startups have their benefits, we don’t encourage you to take this route. Running a startup takes a lot of effort and hard work. A co-founder will reduce the workload, and you’ll have a shoulder to lean on during hard times.
3. Starting Up Without a Business Model
It’s one thing to have a viable business idea, and it’s another thing to turn the idea into a sustainable business. A business plan or model is the link between an idea and a profitable company.
Yet, a common startup mistake entrepreneurs make is launching without a solid business model and it’s easy to see why.
Maybe you have this innovative product. You’ve done some market research, and every indicator is screaming “launch!”
Burning with passion and expectation, you quickly register a company, take the product to market and wait for it to fly off the shelves. Maybe it does fly off, but then after a couple of months, the company starts losing altitude. Sales are slumping faster than a 60-ton plane falling from the sky.
The problem isn’t your product. The problem is you started without a business model.
A business model details, among other things, a business’:
- Operational strategy
- Target market
- Financing options
- Sales and marketing plan
- Revenue streams
- Income projections
In other words, it provides a blueprint for success and overcoming challenges.
Had the entrepreneur in the above example drawn up a business model, they would’ve known sales were likely to skyrocket in the first few months, then slow down. The model would have provided a marketing framework for driving sales.
Don’t be like this founder. Ensure your startup has a business model.
4. Launching Too Early or Too Late
Victor Hugo famously said, “No force on earth can stop an idea whose time as a come.”
This is a good quote to live by, but keep in mind you’re starting a business, not a revolution. Your cause is to solve a problem and make money, not drive a social movement!
Launching your startup at the wrong time can have catastrophic consequences, even if you believe the market is ready for your product or service.
Let’s assume it’s the 1990’s right now. The internet is the best thing which ever happened to you. So you have this idea of creating an online platform where people can share messages and keep in touch.
Would your social media startup succeed?
Probably not, because back then internet access wasn’t as widespread as it is today. Smartphones, the devices driving social media growth, were making baby steps.
Innovative startup idea, but too early for it.
Fast forward to 2019. There are over 100 social networks, and the top ones are multi-billion dollar corporations.
Would it make sense to launch a social network today, however disruptive the idea promises to be? Well, you can give it a shot, but it doesn’t look like there’s space for another social network in most people’s lives.
A potentially profitable idea, but too late.
The gist of this is: the timing of your startup launch has to be spot on. Do extensive market research and competitor analysis to determine whether the time is right.
5. Clinging to an Unrealistic/Unviable Idea
At Tesla, Elon Musk had the idea of creating a fully automated production plant. According to a recent Wired article, this was the only company to build 5,000 vehicles a week. Unfortunately, the idea was more prohibitive than productive, and the company had to abandon it.
Reportedly, the electric carmaker came so close to bankruptcy because it couldn’t meet production targets.
This tells all you need to know about clinging to an unrealistic idea: abandon it before it kicks you out of business.
If a $50-billion industry disruptor can come so close to shutting its doors, what makes you think your startup will operate on an unrealistic idea and survive?
Once you realize the idea isn’t working, abandon it. Don’t burn cash and waste your time trying to make it work.
6. Choosing a Bad Location
It’s not by chance that Silicon Valley in the San Francisco Bay Area is the world’s startup capital.
The area has supportive local laws and regulations, provides easier access to funding opportunities, and the talent market is vast. It’s also home to tech giants such as Apple, Intel, and Google. By virtue of location, a Silicon Valley startup has a chance of succeeding.
You must also choose the right location for your new business. It doesn’t have to be Silicon Valley, but it should provide an environment that enables your startup.
The question is, how do you identify the perfect location?
First, look at your product or service. You want to be in a location with a reputation for supporting your industry. If yours is a fashion startup, for instance, New York or any other fashion city is your dream location.
Second, consider your target market. If you’re selling a physical product, you want to be located right at the heart of your target market.
Third, how are your finances? Prime startup locations are notoriously expensive, so don’t fall for the lure of an area you cannot afford. Start from an affordable location, then move once the business takes hold.
7. Raising Insufficient Capital
You need $750,000-$1.5 million to take a product to market!
Unless you have sold off a couple of businesses before, you certainly don’t have access to this kind of money. Even if you do, it’s not a savvy idea to assume all the risk yourself. If the business fails, you’ll be in a huge financial hole.
If your startup is attracting the interest of venture capitalists and private equity investors, bravo! It means your startup has high growth potential.
But how much should you raise?
If you don’t have a fine grasp of your cash burn rate and financial projections, it’s easy to underestimate how much capital you’ll need for a certain amount of time. Raise too little, and you face the prospect of running out of cash, which is a major cause of startup failure.
Even if inadequate capital doesn’t put you out of business, you risk making costly mistakes. For example, during a cash crunch, some entrepreneurs offer more equity than necessary in a desperate bid to get more funding.
Diluting your ownership stake too early means you won’t have much to give out in future funding rounds. Heck, you might not even have the power to decide when to go in for more capital.
8. Reckless Spending
Long gone are the days of starting a business out of a garage. Sprawling offices, expensive coffee makers, large fridges stocked with beer, and endless office parties define today’s startup culture.
Our aim isn’t to discourage you from embracing this modern culture. There are hundreds of wildly successful startups which have been eating life with a big spoon since inception. But, reckless spending can quickly put your startup in a financial handicap.
Avoid the indulgence and spend your business money wisely. Draw a budget and stick to it.
Instead of ordering brand new office appliances, buy used or budget items that do the job just as well. Ensure every purchase adds value to the business. Bootstrap all the way until your business finds commercial success.
9. Filling Crucial Roles Too Late
When reading the previous two points, did you find yourself thinking “Isn’t it the job of a CFO to curb these mistakes?”
You’re right. A CFO or any other financial pro will help keep a startup on the right financial path. But the problem is many founders fail to hire a CFO and fill other crucial positions at the right time.
Yes, hiring more people ups your recurrent expenditure, but this doesn’t mean you slack on filling essential positions. A CFO, for instance, should be among your first hires. Ideally, you should never approach investors without their input.
Assembling the right team at the right time will help your startup scale faster and stay ahead of the competition.
10. Wrangles and In-fighting Among Founders
Aha, the solo founder! Founder drama isn’t a problem for you.
Co-founders, let’s have your attention.
While the benefits of partnering up with other people to launch a startup cannot be understated, there is a risk your partnership can crumble into persistent wrangles and put your business on its deathbed.
There are various reasons a partnership can go bad. Perhaps you have different visions for the company, or you don’t agree on product development strategy. Regardless of the specific situation, founder conflict takes your feet off the ball.
Garry Tan, the co-founder of Posterous, a blogging startup that’s no longer in business, advises co-founders to spend time together and strengthen the bond, especially when the company is doing great. When you hit a rough patch – and these patches will always be there – the strong relationship will help you keep at it together.
Avoid Common Startup Mistakes and Find Success
Entrepreneurship is the heart of the American dream. Establishing a startup is your gateway to this dream.
Unfortunately, the marketplace is unforgiving. So many startups are going out of business, leaving the founders nursing massive losses and broken dreams.
The good news is we have fleshed out some of the most common startup mistakes founders make. Avoiding them gives your business a real shot at success.
And we’re not just about giving you the information you need. We can also be your economic partner, stepping in to provide the financing your startup needs. Apply for a business loan today with Dealstruck, and see how our technology at work!