As an entrepreneur, you’re bound to be confronted with difficult decisions about your business every day.
While making the wrong decision won’t be fatal to your business most of the time, making too many wrong decisions or making certain bad decisions can make it much harder to grow your startup.
In this article, I’m going to dive into the most common mistakes that startup founders make and share my personal insights as to how you can avoid them while working on your business.
If you’re more of a watcher than a reader, watch this great video by Philip VanDusen as he gives 10 more reasons why startups often fail.
Startup Failure Rates
Before we get started, let’s look at the facts to understand why we should care so much about learning from other business mistakes.
Here’s an unfortunate fact: recent research indicates that approximately 90% of startups experience failure over a span of several years:
- 21.5% of startups fail within the first year.
- 30% fail within the second year.
- 50% fail within the fifth year.
- 70% fail within the tenth year.
Let that sink in, 90% of startups fail, and even if you pass your first year, you’re still not out of the woods!
Interestingly, the likelihood of failure doesn’t seem to depend on whether the startup is a well-known entity like WeWork or MoviePass, or if it operates within a small and specialized niche. The same startup mistakes apply for all types of businesses.
Startups, in general, face a higher risk of closure.
The silver lining is that we have insights into the reasons behind these business failures, and there are valuable lessons we can learn from them. Let’s have a look at the most common reasons for startup failures now.
The 9 Most Common Startup Mistakes
Employing Staff Before You Have Customers
In the early days of your startup, it can be tempting to hire as many members of staff as possible to accelerate the development of your product, especially if you’ve received funding.
However, I’d highly recommend that you hold off until you’ve got a steady income stream from customers, as this is one of the most dangerous startup mistakes. Unless you need people (such as developers to make your product), increasing your outgoings before you’ve got any money is a recipe for disaster.
If you do need some staff members, remember my 2 golden rules:
- Hire only the most essential roles – other positions can wait until you’ve got the money to support them
- Make sure you’ve got enough money to hire the people for at least double the time until you plan to launch – launches get delayed and it can take a while to build enough of a customer base, so make sure you’ve got enough money to keep your staff employed for a good while after launch
Gold Plating Your Product
Gold plating is the practice of adding unnecessary features to your product that don’t serve your customers.
While it may seem like a good idea to add extra features to impress your customers and stand out from the competition, gold plating can put your startup’s success in jeopardy because:
- It increases time to market
- It increases the costs of developing your product
- It will likely increase the time and cost to make changes to your product
- It can overwhelm your customers by providing lots of functionality they don’t need
My Experience of Gold Plating
In the past, I was guilty of gold plating my products. For my first startup, Status Hive (an uptime monitoring and status page application), I added lots of features that I thought software developers would want.
However, when it came to selling the product, I kept getting feedback that, amongst other things, the product didn’t serve the core purpose that my customers wanted and was more expensive than competitors (because of the features that they didn’t want).
Had I spent more time talking to customers and developing the core features, I might have made a more useful and cheaper product, which may have turned out to be a success, instead of a business mistake.
Preventing Gold Plating
Luckily, preventing gold plating is relatively simple.
Before starting work on development, identify your potential customers with a clear marketing plan and talk to them about the core features that they need from your product.
This will allow you to know exactly what is needed and reduce the temptation to develop other unnecessary features.
If you come up with any additional feature ideas while working on your product, MAKE SURE YOU VALIDATE IT WITH YOUR CUSTOMERS BEFORE BUILDING IT. From your discussions, you may decide to do one of three things:
- Abandon the idea
- Postpone the idea until after the MVP is developed
- Work on the idea as part of the MVP
Either way, at least you know for sure what your potential customers want and you’ll have likely saved yourself some time, and potentially saved your business too.
Building Without Talking To Customers
This point is quite similar to the last, but it’s important, so I thought I’d mention it again.
Listen to your customers.
Customers are the lifeblood of your business, so understanding their needs and pain points is essential to creating a product that they will want to spend money on.
By talking to your customers frequently, you can gain valuable insights into what they need, which can help you to refine your product.
Setup regular meetings with some of your potential customers to make sure you’re meeting their needs. You should talk to customers:
- When you first have your business idea – to validate if it’s any good
- When you are deciding what features to include as part of your MVP
- Every few weeks as you’re building your product to ensure it works as expected and does the right tasks
- Before you launch your product to understand how you can best reach your target audience
- During your launch so you can work out what marketing tactics are working
- After your launch so you can get feedback and improve your product
- Consistently as you run your business to make sure you’re heading in the right direction
Wow, that’s a lot of talking! But trust me, it’s important.
When I first started creating my businesses, I tried to shirk away from talking to customers as much as possible, partly because I just wanted to develop my ideas, and partly because I wanted to escape from the difficulties of customer interactions that I faced every day at my 9 to 5.
But let me tell you, creating a business without talking to customers is a recipe for disaster. Just don’t do it.
My list above isn’t even exhaustive. In my opinion, it’s the bare minimum that you need to do in order to run a successful business.
So what are you waiting for, go schedule a meeting to talk with your customers.
Jack of All Trades, Master of None
Trying to be a jack-of-all-trades startup entrepreneur can cause your business to fail.
While it may be exciting to attempt to master every element of entrepreneurial life, it’s likely to result in poor results and prevent you from focusing on the areas that need your attention.
With so many different tasks to focus on, such as creating a marketing plan, performing SEO, launching your product and creating an effective sales pipeline, it’s important to know when you should delegate work to a professional.
If you’re running short on time or experience, I’ve found it’s usually best to get in touch with a reliable freelancer, that way you’re only paying for the services you need. Sites like Fiverr and Upwork are my go-to for freelancers, but make sure you pay attention to the reviews to make sure you get good quality work.
Having a Bad Strategy
Developing a sound strategy is essential to the success of any business, and solid strategies come from a reliable business plan.
That’s because in order to have a successful startup, you need to have:
- A solid understanding of your target audience
- A firm grip on your market and competitors
- Solid, measurable targets
- An understanding of your experience and weaknesses
- A great product that meets your customers needs
All of these things and more are covered by a business plan, so if you don’t have one, you need to get on it!
Solving a Problem You Don’t Care About
I’m sure we’ve all been tempted to start a certain business just because it’s got great potential to make us money. But just because there’s money in a business idea, it doesn’t mean you should necessarily go for it.
Building a startup requires a lot of passion to get started. When you’re spending most of your days working late into the evening to get your business off the ground, you need passion to get you across the line.
That’s why it’s important to choose a problem that resonates with you on a personal level – one you’re willing to commit years to solving. Only then will the late nights and hard work feel like an enjoyable experience and not a complete slog. And that means more success for your business and yourself.
Choosing Co-Founders That You Don’t Know Well
While there are exceptions, I’ve always found that having a strong pre-existing relationship with your co-founders is incredibly helpful.
Knowing each other’s strengths, weaknesses, and how you handle adversity can contribute to smoother collaboration during the inevitable challenges of building a startup. When the going gets tough, you want to make sure you’ve got a co-founder you can trust to work with you to get the job done.
It’s easy to get caught up in the excitement of conferences, investor meetings, and media coverage. However, these activities should not overshadow the core work of pushing your product to users and gathering their feedback.
Prioritize product development and user engagement over the “sizzle.”
This is especially true for new entrepreneurs. It’s really easy to get sidetracked by the overexagerated lifestyle of the entrepreneur, working in coffee shops and starting your day in the afternoon, but you need to make sure that you tackle the difficult problems that take time. Only by tackling these difficult problems are you able to launch a really successful business.
Procrastinating Launching Your Product
After you’ve worked tirelessly for months on your product, it’s really easy to procrastinate launching in favour of improving your product more. But how do you know if you’re improving your product without customer feedback, you could be getting further away from what they want!
You need to get your product out there to get real feedback as quickly as possible to ensure your startup is a success. Early-stage launches are more about validating your product with real users than gaining widespread attention.
Release your minimum viable product (MVP) sooner to gather valuable feedback. Plus, you’ll start getting some all-important revenue for your work, which is definitely needed when starting your business.
Getting Your Pricing Strategy Wrong
Pricing is a critical aspect of any business and is so easy to get wrong.
If you don’t get your strategy just right, it’s a recipe for disaster, namely:
- If you price too high, customers will expect too much from your product and won’t purchase
- If you price too low, customers will think your product isn’t as good as your competitors, so won’t buy from you
It’s a really difficult one to get right, and it’s probably the most common reason why first-time founders’ businesses fail.
But how do you get your pricing strategy right, I hear you ask!
Well, that’s a pretty complicated question, which is why I’ve dedicated a separate article to answer it. Head on over to my complete guide to pricing strategies here if you’d like to learn more.
- Hiring Staff: Avoid hiring extensively before generating a steady income stream from customers. Follow two golden rules: hire only essential roles and ensure you have enough funds to support them for an extended period.
- Avoid Gold Plating: Don’t add unnecessary features to your product. Focus on the core features your customers need to avoid increasing development time and costs.
- Talk to Customers: Engage with your customers regularly to understand their needs and pain points.
- Avoid Being a Jack of All Trades: Recognize the need to delegate tasks to professionals when necessary. Focus on your strengths and the areas that genuinely require your attention.
- Develop a Solid Strategy: Create a comprehensive business plan covering your target audience, market analysis, measurable targets, strengths and weaknesses, and product alignment with customer needs.
- Choose a Problem You Care About: Select a problem that resonates with you on a personal level and that you’re passionate about solving.
- Select Co-Founders Carefully: Building a strong partnership with co-founders is vital. Having a pre-existing relationship can lead to smoother collaboration during challenging times.
- Prioritize Product Development: Focus on developing your product and engaging with users rather than being sidetracked by conferences, investor meetings, or media coverage.
- Don’t Procrastinate Launch: Launch your product early to gather real user feedback and start generating revenue.
- Get Your Pricing Strategy Right: Finding the right pricing balance is challenging but essential for attracting and retaining customers.
Now that you understand the 5 most costly mistakes that you can make when creating your startup, have a look at our guides to creating a successful go-to-market plan and how you can get your first 100 customers.