Why Startups Fail: Deadly Mistakes of Startup Founders
When you’re starting your own venture, the last thing you want to focus on is failure. Nevertheless, if you explore the common reasons for failure in advance, you will be significantly less prone to succumb to them yourself. My recent book WHY STARTUPS FAIL provides a collection of the main reasons why startups come up short and tips for avoiding them.
“You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible.” (Paul Graham)
In the following pages we are going to talk about what startup failures share in common, about the main causes that lead to failure and also about what we can do to about it.
First of all, we will see that when it comes down to assessing the true direction of a business, managers prefer to maintain the appearances of a successful business. They find it hard to admit their mistakes (or managerial failures, if you wish) publicly for reasons that are understandable, but also questionable.
If you’re a young entrepreneur that has just started to walk the path of business life, you must become familiar with both stories of success, and failure. In the first chapter of the book, we will learn that the main reason most startups don’t make it, is the lack of a sufficient budget. The limitations of your budget and the competition should be your primary concerns. Consider what Paul Graham said in 2007 – that most startups fail because they spend their budgets faster than they can actually begin to make some revenue. Also, before starting up anything, you should assess the market’s need for that product, because the number two cause of failure is lack of demand.
A common mistake amongst managers is to put off these objectives. As such, they end up sabotaging the business, as they fail to create a sustainable field that draws power from investors and clients. Furthermore, we will see that, in fact, it’s not even the investors’ money that should be your main concern, but your customers’. The investors are only there to keep you going. It’s the clients that will be the main source of your business’s income.
Another business model that has proven to be successful for some is the “freemium” model. It is based on offering free services, but the real business comes down to asking for money from your clients. Most startup failures in this field occurred because managers have focused too much on investing their resources into the freemium model and failed to evaluate the risks.
The next order of business will be to bring into your attention some other issues that are worth discussing. For example, we will talk about the investors’ tendency to target foolproof businesses. There are a lot of innovating ideas out there and they will continue to be; however, you have to be aware of the fact that investors are reluctant to take a chance. Because of that, small business, that with a little perspective and investment could in the future prove to be quite successful sink. That doesn’t mean you shouldn’t pursue your dream.
On the other hand, poor market research and positioning, as you will see if you keep on reading this report, is yet another reason why startups fail. When starting a business, you shouldn’t rely solely on what you see on paper. It’s equally important to make your homework and observe the market. In that sense, you will learn that timing is everything. If your business has huge competitors, the chances of attracting investors are pretty slim. To increase them, you have to stand out, whether we talk about product quality that exceeds everyone’s expectations or about growth opportunities.
Equally important is to be flexible in your approach. While we agree that you must be strong and stand by your decisions, we also know that being stubborn can easily lead to failure.
A strong leader is needed for any starting businesses. He must be focused and determined to build a team that’s capable of not only strategizing, but also of executing the plan. We will learn that it will be your task to keep that team motivated and to reward employees according to their performances. It’s also important to build a work environment that’s based on team spirit. In that sense, whenever your business faces a challenge or a crisis, you have to listen to what your employees have to say, to discuss the whats and whys and to come up with solutions together. Your insight and mentorship will prove to be of incredible value to your team.