Hi, startupper. Hope you liked our previous article about accelerators. Today, we would like to highlight Top 10 startup mistakes to avoid getting to Acceleration. And for sure, if you would avoid them, you would have much more chances to succeed.
So, Did you know that nine out of ten start-ups fail?
According to Failory, 90% of start-ups eventually go out of business, with a 20% failure rate in the very first year of business.
Although the start-up failure rate seems high, you should not be put off from following your dreams and starting your brand new business venture. There are many things you can do to ensure your new business thrives.
In no particular order, here are the top reasons for start-up failure, and how you can ensure that you don’t make the same mistakes:
Top 10 startup mistakes
- Not having a business plan
- Not being able to flex
- Doing everything by yourself
- Not having a unique product or service
- Pricing too high or too low
- Wasting money
- Scaling too quickly
- Launching in the wrong place or at the wrong time
- Ignoring customers
- Giving up too soon
Let’s go through each point in detail.
1. Not having a business plan
Not writing a business plan, or having a poorly written plan, is one of the most common start-up mistakes you can make.
If you were traveling somewhere for the first time, you would take a map with you to guide the way. If you didn’t have one, you’d potentially never get to your destination!
Think of a business plan like a road map for your start-up. It lets you understand the purpose of your business, who your target audience is, who your competitors are and how you will gauge success. Without one, you won’t know which direction to go in.
You can reduce the risk by creating a business plan before you launch. It doesn’t have to belong or be overly formal, as long as it gives you the guidance you need to make the right decisions. So, don’t ignore it to cross off one more point from the startup mistakes list.
2. Not being able to flex
Even though you may have written a solid business plan, it’s essential to be able to pivot and change direction where necessary.
It may be the difference between surviving and being sent to the start-up graveyard. Unfortunately, we know a list of startups who ignored this and failed because of such a startup mistake.
Even some of the biggest businesses out there have had to adapt and grow with the changing times. For example, take Nintendo. The company was founded in Japan in 1889 and was originally famous for making playing cards. When interest in cards began to decline in the 1970s, the company made a move into video games, which is what it is known and loved for today.
You can avoid this mistake by being as flexible as possible with your fledgling business. If your original plan falls through, what else can you do to make your start-up a success?
What will your backup plan be?
3. Doing everything by yourself
When you start your business, you may be tempted to do everything yourself to save costs and keep control. However, this is not always the best move.
Working on a start-up is hard graft, and founders are expected to wear many different hats. Not only are you in charge of the business, but you are also the senior salesperson, lead marketer, and chief accountant! And while you may be an excellent programmer, you may hate having to go out and sell your business to potential investors.
Doing everything yourself can also cause stress and burnout. This can cause you to fall out of love with your start-up and want to close it down. According to Business Insider, one in two start-up founders experience burnout at some point in their lives, with one in three eventually suffering from depression.
The best way to avoid failure and stress? Get a co-founder on board. Two founders increase the odds of a start-up succeeding and increase the likelihood of investment by 30%.
Even if you aren’t in a position to bring in another founder, getting support from family, friends, and colleagues can make a big difference.
4. Not having a unique product or service
Not being able to offer value to customers is a sure-fire way for your business to fail. If your product or service is too similar to what your competitors already provide, then customers won’t have any incentive to buy from you.
For example, take Nirvanix. The cloud storage system business couldn’t compete with Amazon Web Services, Google Compute Engine, and Windows Azure and had to close as a result. Their services (and price-point) were just too similar to stand out in an already crowded market.
You can avoid this startup mistake by carrying out thorough competitor research before you launch. Ask yourself the following questions:
- Who are your competitors?
- Where are they based?
- What marketing channels do they use?
- What prices do they charge?
- How does your product or service differ from theirs?
- What is your unique selling point – what do you do that your competitors don’t?
A SWOT (strengths, weaknesses, opportunities, and threats) analysis can be really useful here.
5. Pricing too high or too low
It’s always tricky deciding how you are going to price your product or service. Too low and you won’t make a profit, too high and not enough people will buy.
Even big companies can get this wrong. Ford launched the Edsel car in 1957, investing $250 million into research and development, a lot of money at the time. However, the car failed as the price point was too high for customers, and not enough cars were sold to cover costs.
You can control the risk of this happening by conducting thorough research. For example, what are your outgoings as a business, and how much money do you need to make to cover all of your expenses?
Having a thorough pricing plan in place can also make you more likely to win an investment. A potential investor will want to see what your financial position is, and how likely they can expect a return on their investment.
If you are offering your product or service for free (for example, a mobile phone app), you need to look at alternative ways to make money, like selling advertising space.
6. Wasting money is also a startup mistake
Whether you have got funding or are bootstrapping your start-up from scratch, it’s essential to keep a tight hold of your money and ensure you don’t spend it on the wrong things.
The best way to avoid this pitfall is to think carefully about what you need. For example, do you really need a fancy office, costly advertising, or luxurious staff perks while you are still starting out? Or for instance, we were faced with a list of startups who ordered development from a cheap development office and asked us “just to fix some bugs”. If only that could work, but the tech world is made in such a manner when you need to start from scratch. Here you go – one more point in our startup mistakes list.
If in doubt, bringing in a good accountant to keep control of your finances may be a worthwhile investment.
7. Scaling too quickly
You may think that growing quickly is a good thing for your business, and it can not be related to startup mistakes, especially if you are just starting out. However, scaling too rapidly can have disastrous consequences.
Growing too soon can result in two painful scenarios. Firstly, you can’t keep up with demand, and you start to fail your customers and investors. Secondly, the demand just isn’t there to sustain you, and you rapidly lose market share.
For an example of a start-up that scaled too soon, take cookie delivery service Doughbies. This small business quickly earned $670,000 worth of funding, which was unprecedented at the time. However, Doughbies found that there wasn’t a large enough market to justify its presence and had to close down.
As Tech Crunch said at the time: “(It) should have been a bakery, not a venture-backed start-up.”
You can avoid this happening to your start-up by keeping an eye on your business and your KPIs. These are all signs that you may need to slow down:
- You’re failing to meet your metrics
- Your staff are starting to experience burnout
- You’re ignoring customer feedback, or they’re starting to complain about your services (more on that later)
- You’re losing business opportunities
- Your profits aren’t growing as expected
Scaling is a great thing for all businesses, but it needs to be organic… not forced.
8. Launching in the wrong place or at the wrong time
You thought you had the perfect idea for a start-up… it’s just failed because your timing wasn’t right.
It may be the case that you have launched your product or service too early, and people don’t understand it, or the technology hasn’t been invented to sustain it.
It may be that you have launched your product or service too late, and the market is over-saturated.
You may be in the wrong town, city, or country for your product or service to work.
As an example, take AskJeeves. Although it had a lot of big ideas like semantic search, the technology wasn’t there to back the search engine up. If it had launched, later on, it might have been more successful.
Thorough research is the key to ensuring your start-up launches in the right time and place, as well as an ability to pivot in ever-changing times.
9. Ignoring customers (our favourite startup mistake)
You may think that your start-up is doing brilliantly, however, take the time to listen to your customers, and it may be an entirely different story. That’s a key to avoid a list of startup mistakes.
It’s crucial to acknowledge customer feedback in order to grow your start-up and prevent it from stagnating. Ask yourself the following questions:
- What features are customers using?
- Which products and services are they buying?
- What questions are they asking?
- What’s the customer churn rate like?
- What common complaints are being received?
- What scores are customers giving in satisfaction surveys?
For an example of when user feedback yielded dividends, take Instagram. The photo app initially started off as a mobile app called Burbn, where users could check into venues and upload their photos. However, the founders discovered that customers weren’t using it to check in but loved the photo-sharing functionality.
A few tweaks later, and Instagram came into being!
10. Giving up too soon
When you start a business, failure and setbacks are commonplace. Things don’t always go the way you want them to go.
We know a list of startups that gave up too early when in hindsight, they could have kept going.
While at Yale University, a student called Fred Smith pitched a business idea to his professor. His professor gave him a failing grade, saying that the concept would never work. Fred ignored his professor’s criticism and went ahead with the business model anyway.
Fred Smith is now the CEO of FedEx, one of the largest delivery services in the world! So, don’t make the widely known startup mistake – just don’t listen to haters and keep going.
Although the life of an entrepreneur can be challenging, it can sometimes be worth sticking with things. For example, if you are frustrated because you feel unsupported, there are lots of forums and groups you can join for friendly support and advice.
In conclusion – risk management and risk control are the keys to avoid startup mistakes
When you launch your start-up, you want to do all you can to ensure it doesn’t fail. You can mitigate most start-up failures by doing your homework.
A thorough business plan and comprehensive business analysis will allow you to identify your weaknesses and what you need to do to ensure success.
And remember, if your start-up does fail, it isn’t the end of the world. Don’t be afraid to learn from your mistakes and try again.
If you want to read more about common start-up mistakes, there are some interesting post-mortems on the CB Insights website.
There is also a list of cases when making big mistakes leads to mental disorders. Based on this, we would like to share one more link that will greatly help you to overdrive this issue: How to be more patient: building calm composure?
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