The Most Common Startup Mistakes (And How to Avoid Them)
I think you’ll agree when I say: running a business is not for the faint of heart. It’s as challenging as it is risky, which explains why about 90% of startups fail long before they break even:
“In 2019, the failure rate of startups was around 90%. The research concludes 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year.” – Investopedia
Over 627,000 businesses open each year according to Chron, which means we have a serious problem here ladies and gents. I mean, where are we – as entrepreneurs – going wrong?
In other words, why do so many startups fail before fruition? Are we lacking creativity and imagination? Don’t we have the skills and the mettle to build businesses that drive the future?
As a business owner myself since 2011, I have had my share of challenges. My biggest problem was always customer service because of my bad temper, and poor communication.
Over the years, I have learned my lessons and made improvements. As I write this piece, I’m on the verge of launching a new startup, so I had to do some research for my own good.
And in today’s post, I’m sharing my findings for posterity’s sake and as a note to myself as I go into this new business that I just mentioned.
I hope you find a nugget or two of wisdom to help you take your business to the next level. If you love the findings I’m about to share, please hit up the comments, and let’s talk.
With that preamble, let us get down to business. Before we get into the meat of the article, here are some reasons why some startups fail long before they even begin.
Some startups (aka products/services) don’t get out the door because:
- They don’t have a market (read demand) because they didn’t carry out adequate market research beforehand. When I started my first business, I had no idea who my ideal target was. Big mistake. I had to adjust to land my first client.
- Running out of money is a big problem. At some point, you’ve had to deal with tight budgets and little cash inflow. It happens to all startups. Well, unless you’ve prepared beforehand for the hard times. Have surplus capital to sustain your business for a year without any sales.
- We all love loyalty. That’s why we end up hiring friends and family. Well, it’s a trust thing, but you’re better off with competent professionals. So, hire professionals or seek the services of a recruitment agency.
- Zero passion. At times, all we want is a ton of money for lavish things. So, you end up in some type of business you don’t give a hoot about because you will rake in millions. However, without passion for the work you do, your startup is as dead as a dodo.
Now that you know why some startups (and oh, by the way, what is a startup?) never get off the ground, let us segue into the different areas in which startups make mistakes and some strategies for preventing them.
Top 4 Key Startup Mistakes You Must Avoid at All Costs
We can all use all the help we can get. Why? Business is a tough world. There are competitors, too, to oust, and uncertain economic conditions to weather. You need the toughest of skins. Here are four common startup mistakes to avoid and make your work easier.
Arrrgh…legal stuff isn’t fun unless you’re a lawyer. Filling all that paperwork and paying huge fees? It’s not fun. But don’t let legal issues become the lion barring your way to success. You don’t want court sermons when you’re trying to run a new business.
You don’t have to be in the soup because you didn’t pay interns, for instance. Also, legally protect your intellectual property before sharing your ideas. Additionally, if your business doesn’t comply with laws and regulations, you’ll face the music.
The worst mistake you can make is operating a business without legal counsel at all. That’s simply insane considering problems that need legal redress crop up all the time without notice. Also, take your contracts seriously, and abide by GDPR rules, among others.
Growth and Scaling
When you’re writing your business plan and looking to the future, your eyes are gleaming with hope. You’re setting out to create something remarkable and make a killing while at it. You chart your path with all manner of graphs and stats.
You can’t wait to grow your business, scale massively and play in the big leagues. But hold your horses, amigo. Scaling too fast is actually bad for your business. What you need is gradual but sustainable growth. Not fast, errant and unsustainable growth that crushes your startup.
Additionally, you need a solid foundation to support scaling. If you lack the infrastructure and resources to scale, going big is tantamount to shooting yourself in the foot. Build the foundation first, and only scale when you can handle the pains of growth.
As you build your scaling machinery, ensure you’re hiring only the best and necessary talent. I once hired 10 people. Long story short, I fired 8 after running into losses. That, my dear friend, is known as poor hiring practices. Don’t fall into the same trap – hiring hundreds of employees doesn’t translate to more money.
While at it, ensure your growth is in tune with current market trends. Inflexibility will lead you nowhere. It doesn’t foster growth. So, learn to update your strategies with new information to take advantage of modern-day opportunities.
Customer is the king they say, and I agree 100%. No matter how splendid you swing it, if you don’t have a single customer, you don’t have a business. If you’re to build an empire, you must invest in customer service wholeheartedly.
If you don’t know where to start, I would recommend you check in with your customers regularly. In the past, I have won repeat business simply by saying “Hello, how are you doing?” So, follow up with customers already and thank me later.
One other area that we fail miserably is organization. Having poorly organized customer records make it hard to track customers throughout the sale funnel. Without enough and ordered insights, you cannot provide great customer service. Invest in CRM software early on.
Also, why would you run a business without a customer service protocol? If customers cannot reach out, you won’t gather important feedback. Without feedback and analytics, growth will remain a pipe dream.
Last but not least, we have financial mistakes. It’s no secret that many startups collapse because of financial mistakes. The startup cannot afford to stay afloat because there is literally zilch money to keep daily operations going.
For starters, don’t use one account for personal and business funds. That’s a rookie mistake and things tend to get ugly down the line pretty fast. Instead, create separate accounts for your business.
Additionally, avoid bad accounting practices (e.g. poor bookkeeping), and missing due dates for tax filings. The two mistakes are quite expensive in the long run. Many businesses have long closed down due to bad bookkeeping and tax evasion charges. Note that there is a difference between “tax avoidance” and “tax evasion.”
What are your thoughts? Let us know in the comments.