Business startup failure

Business startup failure: 15 most fatal mistakes

It is not easy to successfully implement a project, no matter how economically profitable and attractive it may seem. About what mistakes lead to the bankruptcy of seemingly win-win startups, in particular, in the Internet business, and what should be paid attention to at the investment stage of the project.

All publications give advice on how to lead the company to success. We decided to go the other way around – because the paths leading down often start with the same mistakes.

Let’s start with the fact that it is very difficult to assess the success of a startup in the pre-investment and investment periods. Sometimes a project that brings a loss of $5,000 at the initial stage will eventually pay off faster than one that immediately makes a profit of $500. Therefore, a developed business plan, even if it takes into account many development scenarios, is far from a guarantee of successful investments.

Experts in the field of high technology during meetings at conferences are very fond of discussing the connection between the initial idea of a startup, its launch and the potential of the market. Recently, votes on the importance of each component of a business startup have shifted from the originality of the idea itself to the capacity of the market: 70% is the market, 29% is the team, and only 1% is allocated to the idea itself. Experts are sure that the initial idea is, in fact, only an excuse to form a team and find investment.

And most importantly, today, when launching a startup, you need to “niche”: clearly imagine the target audience of the project. Otherwise, nothing good will come of the venture.

So, we bring to your attention the top 15 main problems inherent in business startups, regardless of their segment (as their importance decreases):

Error 1. Incorrect selection of personnel. For example, taking a relative into a startup just because he is like that is not the most successful act, although a large number of successful examples of family businesses are known: Donald Trump’s construction business, the Hilton hotel chain, and Walt Disney Studios. The lack of skills in the team was cited as the reason for the failure of almost every third startup. Among the errors of personnel policy, the following are also mentioned: too many employees at the early stages; a large number of managers and few – executors; multi-level hierarchy of subordination.

Mistake 2. Lack of active response to customer feedback. Not so long ago, we wrote about how important it is to cooperate with customers on the Internet with the help of their reviews. Narrow-mindedness and disregard for user feedback are fatal flaws for most Internet startups. For example, the founder of the eCrowds company, which created a web content management system, noted in an interview that in the initial stages of the project, he spent a lot of time creating a system “for himself” without the possibility of receiving feedback from potential customers – and therefore ended up in situations with a limited field of vision. He recommends not to delay for more than two or three months the technical implementation of obtaining an objective opinion of potential customers, which is simple and convenient for the latter.

Mistake 3. Focusing on solving tasks interesting to the founder, rather than tasks set by the market and clients. Of course, you can create a project and see what happens with it, but it is better to know the needs of the market in advance. Statistical data, discussions on thematic forums can be useful.

Mistake 4. Unprofessional promotion. Most often, the entrepreneurs themselves ignored subtle marketing, preferring direct advertising – this especially applies to Internet projects. Their founders liked to write code and build products, but they lacked the drive to advance.

Error 5. Irrational distribution of resources. Here the main question is: is it worth spending a significant amount once to give impetus to the product or is it better to develop it gradually?

Error 6. Product / service release at the wrong time. If you release a service or product under development (say, a website) too early, before it is well tuned and polished, users may dismiss it as not good enough, after which it will be difficult to return them. If you release a product too late, you can exceed the allowable level of work-in-progress and miss an opportunity (as Reid Hoffman said, “If you’re not having trouble launching version 1.0 of your product, you’ve released it too late”). Inappropriate product release timing was cited as the cause of failure in more than 20% of cases.

Mistake 7. Lack of motivation and specific knowledge. The co-founder of UntitledPartners stated: “I underestimated the importance of the relationship between our corporate and personal interests.” Lack of motivation as a cause of failure appears in 18.8% of cases.

Mistake 8. Late rejection of a loss decision. If you make the wrong decision, for example, on hiring an employee, take corrective action sooner. And the sooner, the better. As soon as you see that your product is not in demand in the market, think about the necessary changes. Inertia and stubbornness, which limit growth and the ability to change the business model.

I am among the reasons for failure in 20% of failure stories. At the same time, it is important to evaluate the effectiveness and profitability of not only the project as a whole, but also each individual product / service.

Mistake 9. Inefficient pricing. Thus, the founder of Event Vue noted that their fatal strategic mistake was “following the sales model in the corporate sector – with a new and small price each time.”

Mistake 10. Underestimation of personal contacts. Entrepreneurs cite ineffective use of their own communication network as one of the main reasons for failure. This is mentioned in 16% of precedents.

Error 11. Disagreements with investors. You can easily change the concept of a startup, but it is difficult to change the co-founders. Already in the pre-investment period, the scheme of sharing project benefits and responsibilities should be discussed. A co-founder of Bricabox recommends, “When a co-founder leaves the company, your next logical step should be to limit the shares outstanding for all key co-founders.”

Error 12. “Spraying” monetary resources and forces. It’s important to launch one thing and focus on one product, otherwise you risk being left with a lot of half-baked products that don’t represent value to you or your customers. Diverting attention from primary tasks to secondary tasks leads to major problems in product release.

Mistake 13. High level of competition, barriers to market entry. Now there are fewer and fewer niches free from competition on the market. And although obsessive thoughts about competition are not healthy, ignoring it has led to the failure of 10% of startups. It is worth analyzing the competitive environment as often as possible, using, for example, classic benchmarking tools: maps of strategic competitors. The latter shows not only the advantages and disadvantages of the company, but also of the product itself, determining the closest competitors based on this analysis.

Error 14. Dislocation of the central office. Key aspects are proximity to consumers and the possibility of effective communication between company employees. Lack of teamwork and planning can lead to failure. Nuances of location were cited as the cause of failure in 6% of cases. In his farewell letter, the creator of the microblogging service Nouncer considers the decision to establish a firm in New York as a factor that damaged his company (New York has no shortage of money, communities, decent employees and smart people who can give good advice).

Error 15. Part-time work, free work schedule, remote work. All this prompts employees and founders of business startups to have “part-time jobs”. If your main job is full-time, and neither of you is devoting all of your time to the startup, you risk losing the company’s growth rate due to inefficient decision-making. This is especially true for online business. After all, even short-term problems in its work and access lead to an instant outflow of customers.

As for the most common mistakes of online business startups, statistics from Startup Genome research say: 74% of fast-growing projects fail due to premature scaling. None of them could exceed the maximum number of users of 100,000. And the size of their team was three times larger than the size of the team of sustainable startups.

The following dependence was also revealed: unstable startups involve external performers for product development 4-5 times more often than stable startups.