The Top Common Mistakes Startups Make
By the end of their first year in the market, about 25% of startups will have shut shop (As per 2014 statistics). But people still dream, new companies still find their way to the market. Cuelogic has been collaborating with startups and established companies alike. We list here the most common mistakes that startups make, along with real instances, quotes and anecdotes.
Ambiguous Business Plan
Australian businessman Chris Corrigan talks about how one can’t overestimate the need to plan and prepare. “In most of the mistakes I’ve made, there has been this common theme of inadequate planning beforehand.” How important is a business plan? Without a plan, the management wouldn’t know what to do on a day-to-day basis or in the long term, for that matter. Things that make a business plan include: estimated capital required for first phase, company vision and goal definition, customer base description, goal-achievement plans, advertising and branding, office space rental, monthly employee expenses, plan B, etc. If you have not charted out these aspects, much of your initial time will be spent in doing so, wasting valuable startup time.
Consider the story of Melissa Tsang and her restaurant finder web application, cusoy.com. Tsang conducted exhaustive market research and surveys. She then went ahead and launched her product. One of the main hurdles, she admitted post the product’s failure, was handling most of the work herself. As Tsang mentions, in retrospect, she would have liked a co-founder to handle technical aspects, while she focused on non-technical parts. Post the Cusoy debacle, Tsang listed down finding a co-founder as her first priority before commencing on her next venture. Moral of the story: It is always sensible to have a partner and a dedicated team behind you. One person definitely can’t handle a startup. Ever.
Scaling Too Soon
Former Apple marketing executive and startup investor Guy Kawasaki mentioned in his 2013 presentation on ‘Ten mistakes that entrepreneurs make’ that he is yet to see a startup do initial windfall business in its first year. In fact, Kawasaki never saw it happen in the 25-30 years he spent in the startup business. It is even more surprising then, as Kawasaki reveals that there are startups that spend loads of money on this assumption. Scaling your business operations because you are expecting sales to skyrocket, with no evidence of business viability to support it, is a startup delusion best nipped to the bud.
In most software and application-based companies, the company’s fate hinges on timely product release, customer reaction and ultimately – sales revenue. Call it hesitation, procrastination or fear of failure, many companies falter on deciding the product launch date. This uncertainty is directly related to lack of a business plan. Take for example, the year 2000 launch of American Biophysics’ mosquito killing product, Mosquito Magnet. Post rocking initial sales, the production site (for mass production purposes) was shifted to China from Rhode Island. This led to a drastic drop in quality and customer loyalty.Eventually, a product that clocked $70 million in annual sales was sold to Woodstream for $6 million. American Biophysics paid dearly for not having an expansion plan ready for Mosquito Magnet, post launch.
As for rushing into launch mode, hear from Sergio Schuler. Teamometer was Schuler’s website and by his own admission, he rushed into launch mode, recklessly committing a potential big client on building a product, just because the money was good. Schuler then scrambled to hire people and co-partners, resulting in two ‘no revenue’ years. The business failed to take off. But more importantly, it was a learning curve for Schuler on what not to do in a startup.
Here is another true to life example to illustrate the point. Nikki Durkin, a girl barely out of teens, was the founder and CEO of 99dresses.com. The plan was to allow women trade dresses and fashion items with other women who used the website. She moved all the way from Australia to New York to establish her startup. Despite great traction and a solid team, Nikki couldn’t keep the company afloat. She later wrote an article on the failure. Going by her account, it seems the downfall was an outcome of sticking to a single core idea, despite stagnancy and downfall. Change is necessary in a volatile market. As has been witnessed in failed startups, the owner is so emotionally involved with their idea, that solid evidence of its business impracticability doesn’t budge them. Standing your ground may be awe-inspiring in certain situations, but certainly not in the startup’s initial days. In an unpredictable business scenario, you adjust to the situation, rather than the other way round. At the same time,changing tracks too often is not a great practice either.
Hiring Gone Wrong
Running a startup also means working with a team that can relate to your goal. Hiring can well make the difference between success and failure. As wedding apparel website owner (Lover.ly) Kellee Khalil puts it, employees have to wear many hats and if this expectation is not met during hiring, employee management will eat up lot of the CEO’s time in the crucial initial months. This is where your networking skills will help you. If you already know the people (have worked with them before) you are hiring, there are no issues at all. It is when you have to hire brand new employees, that you are at risk. But finally, hiring the right people is a necessary act.
Liz Crawford, CTO of e-commerce beauty website Birchbox reveals that she looks for customer experience and reusable, scalable code-designing in potential programmers. Business owners are always conjuring pictures of systematic and error-free web applications, quality aspects that are sure to drive business to the website. It is equally baffling to recruiters, when the selected programmers fail to match up to expectations. Hiring a programming expert to evaluate and select quality programmers for the firm is thus an important step. Many startup stories wind up to THE END credits too soon because they lack good programmers.
‘Funding First, Customers Second’ Approach
Scrambling after funds is a prevalent practice among startups. Leslie Lynn Smith, president and CEO of the top business accelerator, TechTown Detroitare meets several ‘eager for funds’ startup owners every day. Smith suggests to most of them that they focus on gaining customers and a steady revenue and then seek capital. Once a startup is in a position to expand and requires more capital, that it can go looking for investors. Again, many entrepreneurs do not want to give away significant company percentage to investors. Alan Whitman, managing partner of accounting and advisory firm Baker Tilly, mentions how entrepreneurs need to be persuaded to part with a certain percentage of the company in return for investment.
Blindly following Advice / Guidance
Zoe Barry, founder of ZappRX, a specialty medicine firm, was advised by her investors to hire two top-level executives, suggested by them. Barry agreed, only to find that the two didn’t fit in to the scheme of things. As things got bad, Barry had to fire the executives. Post this troublesome experience, Barry learnt that while it was good to listen to investors and other fatherly advice, trust yourself on what’s good for the company. At the same time, no matter how much expertise you have in a certain field, you will always need a support system. Bringing in investors, apart from the money; seeking expert advice from the people who have worked with startups remains a great idea.
No Focus on Product/Service
“Every day that we spend not improving our products was a wasted day,” says Joel Spolsky, co-founder, Stack Overflow, a Q&A site for programmers. Prioritizing the advertising and marketing campaign before improving on the product is another prevalent practice. End result: brilliant advertising campaign with a weak product at its core. As Wendy’s (Fast food restaurant chain) founder, Dave Thomas says,“What do you need to start a business? Three simple things: know your product better than anyone. Know your customer, and have a burning desire to succeed.”
1.About 25% startups fail in the first year.
2.Of these, the remaining 36% fail in the second year.
3.Among the remaining, 44% fail in the third year.
4.From the ones still standing, 50% fail in the fourth year.
5.Majority of startup founders (40%) are between the ages 30-39.
6.About 34% of startup founders are between the ages 20-29.
7.Almost 20% of startup founders are between the ages 40-49.
8.Approximately 39% of startup founders are former CEO’s and founders.
9.An average of $1.5 million is spent by a startup company.
10.40% of the startups have two founders, 39% have a single founder.
11. About 82% of all startups in 2014 were self-funded.
(Statistics Courtesy: mashable.com)