Countless startups fail every year. But there are not countless reasons that they fail. Here are some that I think are the biggest contributors
No one would show up to run the Boston Marathon without training first. The same should be true of startups
. You need to warm up with some prelaunch training, from getting proper rest and nutrition to shoring up relationships. “You have to be rigorous about making sure you’re ready and that every area of your life is in check,” Kamil says. A startup
will take a toll on your life, guaranteed.
- Confusing a product with a business
“A product solves an individual need,” says Eric Holtzclaw, “but a real business has something customers will come back for again and again.”
Here’s how to make the distinction: Do you have potential revenue streams beyond the customer’s initial purchase of a product? That’s a key factor for prospective investors, who “want to see what the next thing is and want to make sure that there’s some longevity beyond what you’re offering today,”
Since one cannot be good at everything but every part of one’s business should be done expertly -- particularly the tricky stuff like taxes and legal issues. “Structuring not only the company but also potential investments in the wrong way can come back to haunt you,” says serial entrepreneur Greg Rau, COO of Ridago, a hardware engineering firm based in Oregon. So where it really matters, don’t download some free online guide or think you can handle it yourself. Find an expert whose job is to know exactly what you need to do.
“Magical thinking can kill any business,” says Lisa Stone, the San Francisco–based co-founder of the online community BlogHer. You can’t just believe you’ll succeed you need to actually crunch some numbers and figure out if you will succeed.
Here’s a scary number: Seventy-four percent of high-growth internet startups fail
because they scaled too fast, too soon. The basic problem is the same: They’re draining the budget on things that aren’t essential to expansion or determining whether their business is even viable.
- Clinging to the wrong idea
This mistake is especially prevalent among first-time entrepreneurs and people entering an unfamiliar market -- folks who just fall in love with their original idea and can’t recognize how much it’s failing. Don’t go on gut. Go on evidence. Evaluate how your product fits in the market. Maybe you run experiments on what tactics or product tweaks draw in customers the best. Or maybe you closely track how much it costs you to acquire each customer -- and if small tweaks make that cost go up or down.
It’s perhaps the most classic problem in management: Rather than give up control and trust others to take the reins, you try to do everything yourself -- and fail.
- Thinking money solves everything
Struggling entrepreneurs often think that if they can just raise another round of financing, their problems will be solved. But money doesn’t work like that. It can’t solve a fundamental issue with a business model, says Carter Cast, professor of entrepreneurship at Kellogg School of Management “If your business model isn’t sound, throwing money at it is not going to work,” Cast says.
- Underestimating how long sales take
Let’s get this out of the way: Sales take time. Many startups
even think they can close a big enterprise account in three to six months -- but in reality, a deal like that can take more than a year. And if your business plan doesn’t account for that, you’re going to be in trouble.
“I’ve seen many companies run out of money because they have been too aggressive in estimating their timelines,” says Cast
Change the mindset. You didn’t fail -- you ran an experiment that will improve your next business. “It’s learning,” Kamil says. “Although it hurts a little bit each time, now you’ve learned something, and you can apply that lesson to move forward and make your business better.