Fatal Error: 10 Mistakes that Make Startups Fail


- Lance Johnson 07.23.2015

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According to Vision Launch Development Group, most of the 27 million startups in the U.S. will fail. The infographic titled ‘Failing Gracefully: The Secret to Startup Success’ reports that one in ten small startups succeed. Eight out of ten fail within the first three years while five out of ten disappear altogether in the first five. While tough competition is usually blamed, there are actually other reasons for small business’ failure. Here are the top ten for you to avoid to help steer your venture toward success.

1. A Single Founder

There are only a few successful startups that have a single founder. Even Apple, although sometimes associated with Steve Jobs alone, was founded by three programmers. Now you may wonder what’s so wrong with having just one founder. However, running the company on your own shows that you don’t trust friends or vice versa. Even if that’s not the case, not having co-founders means that you’ll bear with all the stress on your own and be responsible for all your decisions and their consequences.

2. No Market Need

According to CB Insights’ report, 42% of startups failed simply because they produced what the market doesn’t need. By making products people don’t want, you’ll end up wasting your resources on planning, creating and marketing. This is bound to make your company belly up, especially if you invested in multiple products no one needs.

3. Lack of Cash

There are many reasons why startups may end up lacking the cash they need to continue their business. First off, many don’t raise enough cash. Startups need time in order to be profitable, which is why many run out of money before they generate profits. This is where having investors helps, especially to get enough funds to cover the initial stages.

Another money-related issue is spending too much. Though many startups have learned not to burn through too much money, there are entrepreneurs who spend more than they should. One of the biggest expenses programmer and investor Paul Graham highlights is hiring a lot of people. Aside from increasing costs, manpower is bound to slow you down since you need to make sure that your money lasts longer. Luckily, there are other ways to save such as paying with equity rather than with a salary.

4. The Wrong Team

In order to succeed, you’ll need a strong technical team backing you up. eBay, Amazon.com, Apple and even Facebook had people who shared the same vision and commitment to see the ventures through to success. Their founders set goals and planned ways to accomplish them while their team followed. If you’re currently lacking the right people under your command, ResearchConnection recommends that you add the following members to ensure your startup’s success.

The Dreamer – A person who believes in the idea, driving and inspiring everyone in the workplace
The Visionary – A person who can pinpoint issues and come up with their solutions
The Doer – An individual who can turn ideas into reality through their expertise and diligence
The Innovator – A talented member with keen intuition and the skill to innovate and execute
The Taskmaster – An expert at delegating and organizing, making them capable of building a culture of success and hard work
The Connector – A person who fosters a network of crucial contacts, building relations with customers, advisors and investors

5. Failure to Pivot

You need to be ready to make multiple changes as you go. Pivoting, or throwing away your business model and starting over, is important to ensure your business’ flexibility. According to Vision Launch, companies which pivot once or twice flaunts 3.6 x better user growth, raises 2.5x more money, and enjoys 52% less chances to scale prematurely. If you’re hesitant about making changes, remember that Apple and IBM changed their models in the 1990s to avoid bankruptcy.

6. Avoiding Messes

Startup owners are usually too scared to step up their game. While some choose a small niche to avoid competitors, others try dumping the messy business on others. In the first scenario, you’ll end up avoiding good ideas simply because you don’t want competitors going against you. Even if you don’t do it on purpose, your subconscious will prevent you from getting grand ideas to protect you. Again, this is where having more than one founder can help. They can knock some sense into you and others resisting thinking big, ensuring that you do end up at the top.

On the other hand, not wanting to get your hands dirty may not be an option. PhD students in 1999, Larry Page and Sergey Brin wanted to sell their search engine algorithm to Excite. However, the latter rejected their offer of $1 million, lamenting much later when Google became a multi-billion company with Dec 2014’s revenue amounting to $14.5 billion. So don’t think about handing over any messy business in hopes of extracting money from it.

7. The Wrong Platform

By definition, a platform can mean an operating system, programming language or framework built on top of programming language. If yours is an IT startup, you know how integral the right platform is for your business. For instance, those that embraced Java applets for creating applications realized that this was the worst platform for their venture. On the other hand, if you’re in any other industry, the right platform can determine your company’s reliability. For example, had PayPal switched to Windows after merging with X.com, the company would have suffered like thousands during the Bubble.

8. Untimely Launch

Many companies wait until they’re 100% ready to launch. However, delays are bound to cause more harm than good. In addition to allowing others with similar ideas to dominate the market, you’ll feel less pressurized to finish the remaining percent. You’ll also develop fear of dealing with users or being judged. Similarly, launching too fast is dangerous. Not only are you at the risk of ruining your reputation, but you may alienate other people.

The solution of both of these issues is creating a sensible plan. You need to identify a core that’s useful on its own and can be incrementally expanded into a more comprehensive project. Not only will doing so save your time, but creating subsets will improve your morale and allow you to see the whole picture more clearly.

9. Lack of a Marketing Plan

While the top reasons startups fail are related to the lack of funding and office culture, specialists believe that most companies belly-up because they didn’t give their marketing efforts a second thought. You may be outlining your sales forecasting, but you won’t succeed without a fully developed marketing plan. This is especially true if you’re stepping into a competitive niche. After all, you need to show your prospects and clients how you differ from others.

10. Weak Company Culture

Whether you have three employees or ten, you need to focus on your company’s culture. You may get too excited about your venture, neglecting cultivating an environment where people will readily work. However, by forgoing this essential detail, your employees won’t feel valued and, eventually, will become less engaged. As a result, you’ll suffer from lack of productivity and high turnover.

Establishing and running startups are laced with risks that make working 9-5 a better option at times. However, by avoiding the mistakes others have made before you, your venture can outlive the competition and grow into a multi-million company. 

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