Building a startup business is a risky business. Statistics on startup success make pretty dire reading, right across the board. According to one study of over 1,100 tech companies, only 15% managed to raise a fourth round of funding (Series C). Approximately 67% of companies either died or had to rely on self-sustaining solutions.
Reasons for a startup collapse are varied, but in many cases, they are self-inflicted through a mixture of negligence, stubbornness, and poor planning. With sensible course adjustments, the development of intelligent strategies, and even outside professional assistance, the startup’s potential for success might have dramatically improved.
Like with anything in business, it’s often in the early stages of a startup’s existence where the most important choices are made. The decisions made in these exciting weeks and months, where dreams run wild, can have a big impact on the future trajectory of a fresh new business. It is therefore vital to know the potential pitfalls right from the beginning.
Common startup mistakes
So what are some of the most common startup mistakes? And how can you best avoid them, as a new startup founder, if you want to meet with long-term success?
- Poor market research
Misunderstanding your target market is a surefire way to meet with failure. And unfortunately, it’s the primary reason why startups collapse, according to a CBInsights study of 101 startup postmortems.
It’s vital to study your market and discern whether your product or service will actually be in demand. Does it fill an essential need? Will it occupy a gap in a hungry market? Making assumptions and misinterpreting market need through the sheer desire for a product to succeed, is simply following in the footsteps of countless ex-entrepreneurs.
- Trying to go it alone
Many startups begin as one person endeavors. When you’re a solo-professional, every task, procedure, and decision is on your shoulders. This can work well for some people but if you want your startup business to grow and expand, it’s likely trying to go it alone will end in both burnout and failure.
An alternative to trying to do everything yourself is to delegate tasks to freelance professionals in the appropriate fields. For example, your website design can be subcontracted to an experienced web design pro. A virtual assistant can take over everyday admin tasks, which eat into your evening and weekend hours.
- Choosing the wrong co-founders and team
The wrong co-founders can also have a detrimental effect on your startup. In fact, in the aforementioned study, a less than ideal team came up as the third most common reason why fledgling businesses fail.
Choosing the best co-founders for your startup is imperative. They are not necessarily your best friends either. You can get on extremely well with someone socially but soon find yourselves at constant loggerheads in a professional environment.
Good co-founders are people in sync with your professional ethos and who can add essential skills to the growth of your company, both in the short and long term. What you both do outside of work is often neither here nor there.
- Poor cashflow
Sound cash flow management is imperative and lessens the chances of the second most common reason why startups fail – running out of cash. Your cash flow is your startup’s inflow and outflow of money. To ensure your business remains afloat, it’s important to have a good general knowledge of intelligent cash-flow strategies. Or, to hire someone who does.
All too many startups go with the flow, taking out excess cash in the form of salaries or being too optimistic in terms of things like inventory and loans. A poor cash flow culture can not only lead to a sinking startup but lots of financial trouble long after the business has evaporated.
- Weak marketing and too rigid an identity
For any business to both survive and thrive, strong marketing is essential. Many startups that ultimately fail had poor marketing strategies in place. Their marketing and sales techniques were a mismatch for their particular market, product, stage of development, and even location.
Part of poor marketing is adhering to an identity that’s too rigid for a fledgling business. While a strong brand is important, part of a startup’s power is in its agility and ability to pivot. Competition, product failures, and market changes can lead to new developments and ideas, which can subtly or overtly change the whole direction and identity of your startup’s trajectory.
- Picking the wrong investor
You might think any investor willing to invest money in your business is a winner. Yet this isn’t always the case. The wrong investor can create a whole load of anguish and leave your business on its knees. It’s also extremely difficult to untangle yourself from an investor if the relationship goes south. Take the time to choose your investment source carefully.
A great investor believes in your vision, has knowledge and experience in your industry, is a fit for your culture, gives you the right amount of space, has a positive reputation in investor circles, and can be there for the long-term. Plus, and perhaps most importantly of all, is a generally nice person.
Avoiding the most common startup mistakes
These are just a few of the most common startup mistakes. Others include overspending and underspending, rushing through the planning stage, failing to create a business plan, underutilizing the latest technology, undervaluing your products/services, ignoring customers, ignoring your health, and losing focus on why you began it all in the first place.
Whether you’re just starting out or going through a third round of funding, it’s important to actively look on an ongoing basis for potential issues that could snowball into something a lot more serious.
As already noted, it’s often in the early stages of a startup business where the initial cracks appear which, if left untreated, become the very issue which ultimately collapses the business.
Many startups succeed and thrive. Yours can as well, with intelligent planning, thorough research, and an openness to learn from those who have successfully fulfilled their own startup dreams.