12 Reasons Startups Fail

“Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations.” — Steve Jobs

While there’s something to be said for learning from your mistakes, there’s also something to be said for learning from the mistakes of others and avoiding the startup pitfalls altogether. Some business mistakes are unavoidable, but dodging the common and not-so-common business pitfalls below will help increase the odds of keeping your new business in business:

Picking the Wrong Business Partner

Your days of running out of money before the month runs out of days have been temporarily halted. You’ve been in business for six months and your company just landed its first big client, which will provide enough capital to fund your startup for the next 12 months. Finally, you can exhale and catch your breath and stop worrying, at least for a moment.

Your cellphone rings and it’s your business partner.

You answer, ready to share the excitement of the big sale and discuss the company strategy moving forward now that you finally have a bit of a financial cushion. Instead you find out your co-founder has unilaterally decided to invest the entire amount of the new sale on Yellow Page ads, saying he got an incredible deal from his brother and the contract is already signed.

What!? While you had briefly discussed expanding marketing and investing in Yellow Page ads, you’re in utter disbelief your business partner would invest in a potentially dying channel of marketing, regardless of how good a deal he got.

As excited as you were 30 minutes ago, that excitement has quickly faded and the news has left you confused, shocked, concerned once again about the financial well-being of the company, and questioning your choice of business partners. Having second thoughts?

While healthy disagreement and debate can be beneficial for an organization, utter stupidity is a tough hand of cards to play, as is picking the wrong business partner. This mistake may be the toughest one to recover from, as it could impact every facet of your business.

While everyone knows hiring the right people is key to the success of an organization, finding the right co-founder(s) can be even more important. Co-founders should collaborate and/or agree on the mission, vision, and values of the organization from the get-go and ideally have complementary skill sets.

Who are you in business with? Should you go it alone or is finding a co-founder the way to go? Ultimately that decision is yours, but if you do search for a co-founder, here are a couple of tips:

  • Look for shared core values, or establish core values for the company.
  • Trust and integrity are of the utmost importance.
  • Get everything in writing.
  • Finding someone with a complementary skill set is ideal.
  • Work on a small project together (if possible) before starting a company together to get a feel for the working style of your potential partner. Even throwing an event together can teach you a lot about the potential business partner’s communication patterns and work ethic.

Starting a company with a friend or family member because it feels right is going to put you up against the odds, as making business decisions with loved ones involved can get complicated. That’s not to say it can’t be done — but proceed carefully.

Running Out of Money

This may seem obvious, but this is the No. 1 reason startups fail. If you don’t have enough money to keep working on your startup, you’re going to need to focus your time elsewhere.

Here are a few ideas to extend your runway — the time you have to get profitable before you run out of funds — to increase the likelihood of your business succeeding:

  • Calculate your startup costs and monthly burn rate (expenses), both personally and professionally, before starting your  business. Estimate how many months your business can survive before you run out of money. Remember to build in a reserve for unexpected medical expenses and other financial surprises, like car repairs.
  • Focus on generating revenue for your business before increasing expenses.
  • Hold off on the expensive office space!
  • Getting some small wins (sales) under your belt early can improve morale and also prove there is a market for your product or service.
  • Keep or find a part-time or full-time job or additional revenue stream(s) to extend your runway.

Lack of Customers

You gathered all your friends and family outside the store this morning, and with the largest pair of scissors you’ve ever seen cut the red ribbon and voi-LA, you are open for business!

The friends and family who helped celebrate have now all gone to work and you are left with an empty store. Do you hear that? Crickets! Not a sound in the room.

Where are all the customers?

Once the initial excitement of your idea has been turned into a business, it’s time to go find customers who believe what you believe about the solution your product or service is providing.

What is your value proposition? How did you decide what service or product to sell? Are you solving a problem your customers are actually willing to pay for? How do you know?

Bad Reviews

When was the last time you went out to eat and didn’t have a good experience? Did you tell anyone about it?

Of course you did. And in the digital age of Yelp, TripAdvisor, Amazon, Twitter, and thousands of other sites that allow you to share your consumer experiences, bad reviews can absolutely sink your business.

When the sale is made, your work is far from over.

Follow-up, ongoing service, and helping your customers understand how to properly use your product or service are all key elements of customer satisfaction, which will in turn affect word-of-mouth marketing, which will lead to either more customers and repeat business or being blacklisted.

Your first customers will likely have questions, concerns, and feedback, which is why this next one is so important.

Not Spending Enough Time With Customers

Customer service is going to make or break your business. You would be wise to beta-test your product with a small audience before you launch to get their thoughts, feedback, and criticisms. This feedback is extremely valuable in iterating moving forward. Continue to gather feedback, and continue to evolve.

Learn about challenges customers are facing or features they would like to see that you’re not offering. Often, solving the biggest problems your customers are facing with your product or service can build tremendous customer loyalty and lead to many new innovations.

Failure to Clearly Identify Your Target Market

I just spoke to an entrepreneur who has a healthy snack for teen girls. I’m a 33-year-old man, so it’s clear I’m not her target market, but how do you think a 14-year-old girl feels when she hears about this business? “I’m exactly the person this business is for.” That is the feeling you want your customers to have.

When people say their product serves everyone, the reality is very few people probably relate to the product or service or marketing message.

With the low barrier to entry in marketing these days (thanks in no small part to technology and social media), more and more smart people are throwing their hats in the ring to start businesses. So your company needs to differentiate to stand out. Direct your marketing efforts and dollars efficiently amidst all the noise in marketing today.

Lack of Proper Insurance

Don’t have a budget for insurance yet? Tread carefully.

If chance strikes, not being properly insured in the event of a fire, on-site injury, or other unforeseen event can quickly put your business out of business. Calling an insurance agent for quotes or investing in an hour of a lawyer’s time is a good idea if you’re even slightly unclear on this one.

Raising Capital Instead of Finding Clients

Dear startup founder: Please go find customers instead of trying to raise money. While this is not universally applicable, raising money to fund salaries or your (non-revenue-generating) experiments is not attractive to most investors. Yes, there are exceptions to this, but for most entrepreneurs, go find clients and stop looking for investors.

Once you find clients, it will be easier to find investors, and the valuations will be higher.

Sales is a valuable skill that will serve any entrepreneur, and you will need to sell customers, employees, and perhaps even investors on why your vision for your business is worth backing. Nothing makes this pitch easier than having revenue on the books, and revenue growth is a good signal your business is on the right track.

Want to learn more? Check out “How to generate sales and market your business without breaking the bank.

Not Having a Web Presence

What is the first thing you do when considering working with a company or buying a product? If you’re like most people, you type the company or product’s name into Google, Bing, Facebook, Twitter, or Amazon.

Are you and your firm ready for research? Do you have reviews and testimonials online? Are people able to find your website via search engines and social search?

Dying Industries or Platforms

Remember when the choices were VHS or Betamax? Or when going to the video store to rent a movie was a precursor to movie night?

What about the days of MySpace? Prior to Facebook, MySpace was the social platform to be on. But due to a lack of vision and innovation, and poor decision-making by NewsCorp (MySpace’s eventual parent company), MySpace got lost in the social-network shuffle and seemed doomed until a recent, modest turnaround in which they’ve positioned themselves as a music social network site. Is your company too reliant on a single platform or type of media?

Think back to the opening example, where the business partner put a large investment in Yellow Page ads. Did that strike you as a good business idea?

Think about your answer. What industries or platforms related to your business are positioned for growth and longevity? Which channels, industries, or companies you rely on might not be around in five or 10 years? How is your business managing and assessing these risks?

With the rampant expansion and evolution of technology, we’re seeing products and services becoming extinct, experiencing drastically reduced demand, and needing to reposition, innovate, or die.

While it is impossible to know for sure, Jeff Sprecher, chairman of the New York Stock Exchange, put it like this when visiting the University of Wisconsin at Madison: “Find a strong current and jump in. You are going to have to avoid rocks along the way, but whatever you do, don’t try and swim against the current.”

Burnout

Some entrepreneurs forget the second part of the work-life balance equation. While being a hard worker is good for business, working yourself to the point of burnout, exhaustion, and health problems is not in your business’s best interest.

Check out my post on “15 Ways to Grow Your Business This Year” for some other ideas on how to stay healthy, grow your business, and avoid burnout.

Laziness and Lack of Hustle

Is there any way to fool-proof your chances of being successful as an entrepreneur? No. This one comes last because it’s one I want you to take with you.

Hard work pays off. Being an entrepreneur is not easy, but the financial rewards and freedom to control your own destiny and schedule and build something are rewarding beyond belief. Regardless of the path you go down, go all in. You don’t have to be there forever, but give it 100% while you’re there.

Businesses require a lot of hard work, good ideas, the right timing, and execution to be successful, and often a little bit of luck.

Accept mistakes and failures as part of the risk and learning curve of starting a business. Keep working hard. Learn from your mistakes and push on. If hearing that causes you to freeze up or doubt yourself to the point of inaction, then starting a business and being an entrepreneur is probably not for you.

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