Top Startup Mistakes that Founders Make

Hello everyone!

I am enamoured of the idea, that building a startup is so like a game of Lego, which needs to be built brick by brick, block by block, matching every key to its lock, going harmoniously by the clock, not too soon, not too late, with not too much, or too less, on the plate! In other words, doing the fine balancing act, with a strong foundation.

To get started, this blog intends to do a post mortem on the common mistakes that plague startups, so much so, that 90% of all startups, which means a whopping 9 out of every 10 startups, fail! These abysmal figures are enough to make any ordinary person cringe and dissolve his entrepreneurial spirit. But whoever thought that entrepreneurship was for the weak kneed and the weak bellied, was mistaken. For it takes more than just an idea to be a successful entrepreneur and by no stretch of imagination is this less than an arduous journey!!

So let’s look at the errors of judgement, as I would like to call them, instead of mistakes that happen at various stages of a startup. These are undoubtedly, interrelated, but one of these could be the key or the trigger factor for a particular startup to fail.

To begin with, the idea and the product developed therefrom, per se, need to be understood. If one could answer the question, What is an ideal idea? we would be well on our way to solving one of the most fundamental flaws of an unsuccessful startup. Any idea whether de novo, original one or a tried and tested one which is executed in a unique way, has the potential to morph into a lucrative business. Ideas which serve the purpose of the masses, rather than a niche clientele fare better. Although the niche market too has many takers now. The more people it caters to, the better. There is evidence that ideas which have intellectual capital and which are based on R&D have a greater chance of succeeding into healthy businesses, compared to those which don’t. Small ideas that cannot be scaled to the desired extent tend to die a natural death. Ideas, ideally, need to be user- defined and user-ratified, ensuring that the startup is making a product that the users want, and which solves their problem. It’s also desirable that the idea be flexible, able to align itself to the demands of the market/users; that being the key to survival. On the flip side changing ideas too frequently also doesn’t augur well for the company. Further, it pays, if there is a long term of vision of ROI being atleast ten times that of the investment.

To sum it up, an idea should be user-defined and validated, cater to maximum number of people, scalable, flexible and able to make atleast ten times the funds that have been invested in it. So anything lesser than this has a high chance of failure.

Closely related to the idea, is the product. The most common reason of failure is that the product built, is not optimum. By optimum product it means one which definitely meets the demands created by the users. Especially valuable is the feedback given by the early adopters (on the MVP or minimum viable product) which gives an inkling of how good the product-market fit is i.e. the key to every lock!! Once this is established, there is no looking back. What becomes crucial now is launching the product in a well-researched market. And whats even of greater importance is the timing of the launch Not too soon, not too late..impeccable!

Launching too early, when the market is not ready or procrastinating the launch till it’s too late by which time the competitors are already in the game, kills the original product even before it has reached its desired destination. Launching a product that is not optimum and scaling up before the product is perfected called premature scaling, could be disastrous, as then the startup has a product that no one wants to buy.

The next most important factor which triggers the down-fall is related to finance. Raising too little or raising too much of money, have peculiar issues of their own. Funds raised, ideally, should be enough to build a credible product. It’s always best to raise finance in bits and pieces which are used sensibly, without any wastage and arbitrarily should be available for atleast 18 months as a buffer. A phenomenon associated with this situation is a “cash burnout” which happens when a lot of people are hired unnecessarily, which adversely affects every area of the functioning of the startup. Apropos this, there’s always a dilemma of whether one has spent more or raised less. The idea would definitely be to avoid that costly mistake.

On this note, it’s worthwhile to contemplate that raising surplus funds from VCs effectively sounds the red alert. The investors are watching founders like hawks, directing their moves. With so much at stake, this hampers the plans and progress of the startup as it is difficult to change tracks easily for e.g., to address another segment of customers, say from B2B to B2C or to even pivot around the idea or the product. But what would hurt the startup the most is not having a revenue model, neither in the beginning of the startup’s journey nor as it grows.

Startups depend heavily on the team that the startup comprises of i.e. founders and co-founders, and later as the startup scales, the employees. What matters is the confidence, passion and high degree of motivation from the CEO right through the ranks, followed by the level of expertise  the right person for the right job. The team needs constant motivation to keep going despite failures and the correct form of incentives in terms of equity. An absence of one of the above factors, and sometimes an absence of networking and involvement of a mentor to support it, can prove to be costly. A single founder invariably lacks this support and maybe doomed to crash very early on. Disharmony among founders and co-founders is usually the order of the day and could spell disaster if one of the key people leave the startup.

The mistake here would be a lack of communication and not taking the initiative to sort out interpersonal issues.

There is nothing like competition as an incentive to perform and up the existing standards but competition can kill if the startup cannot withstand it. If the startup does not keep track of competitors very early on and remain flexible to change ideas and products to stay on in the market, it is bound to shut shop and head for an early exit.

Couple this with half-hearted efforts, and an unwillingness to take the plunge and work wholeheartedly towards achieving what one has set out to achieve; that’s what invariably spells the death-knell for a startup.

To reiterate, nothing succeeds like success and it’s only when an idea is backed powerfully by the collusion of human efforts chance and circumstance that it can convert into a successful startup!!
Have a great day ahead!

REFERENCES:

1. paulgraham.com/startupmistakes.html
2. www.forbes.com/03/big-legal-mistakes-made-by-start-ups
3. www.forentrepreneurs.com/why-startups-fail
4. http://www.marketwatch.com/story/20-biggest-reasons-why-startup-companies-fail-2015-06-16
5. http://catleblanc.com/original-business-idea/