Treadmill of Failure – Mistakes that 9 Out of 10 Startups Make
Launching a startup is an exhilarating endeavor – you have a vision, you assemble a team, you work tirelessly to build and market your product. Yet the harsh reality is that over 90% of startups inevitably fail. Why do so many founders fall short despite working incredibly hard? By learning from the mistakes of those who have tried and stumbled before, you can course-correct in time and set your startup up for success. In this post we’ll examine the 11 most common pitfalls that repeatedly take startups down.
Key Points
By learning from those who have tread similar ground before, new founders can help avoid these all-too common pitfalls that can destroy startups:
Validate market demand, nail financial planning, assemble the right team, design customer-informed products, identify your business model and unit economics early on, listen to user feedback, get the marketing formula right, track competition obsessively, grow sustainably, respect regulations, and sustain founder passion.
Do this and your chances of being in that lucky <10% of startups who eventually make it to the other side are exponentially greater.
Lack of Market Need
In 2018 electric bike startup Karēn Folded after just 10 months and nearly $1M raised. Despite a slick design and decent press coverage, Karēn failed to gain traction because consumers simply didn’t need another e-bike offering in a crowded market. Validating market demand is step one. Be ruthlessly honest with yourself – speak with 100+ real potential customers, not friends, and collect hard data on exactly how many would commit dollars to buy your product as is today. If the demand just isn’t there yet, avoid plunging forward based on assumptions.
Running Out of Cash
Most startups ultimately fold due to cash flow issues. Meal delivery service Sprig was on a rapid growth trajectory until funds dried up – forcing an abrupt shut down. Obsessively model out your complete financial picture for the next 1-3 years accounting for projected burn rate, when you can realistically break even organically, and precisely how much total funding you’ll need to stay alive. Leave ample margin for error in plans. And continually manage spending manically. Cash is oxygen for startups, so financial diligence across planning, tracking, cutting controllables, and always fundraising proactively is non-negotiable.
Not the Right Team
Who you surround yourself with can make or break your startup. Shared office rental company WeWork painfully learned this when its core team spectacularly imploded leading to a failed IPO and dramatic value loss. Ensure you build a balanced founding team with complementary skillsets – combining technical prowess, marketing savvy, operations rigor, industry expertise, financial acumen, and so on. Moreover prioritize team culture fit. The strain of the startup grind will testing even the closest co-founders. So align on values, communication styles, roles, vision and decision making early on. Maintain transparency and tackle conflicts head-on before they fester. Invest in bonding to unite the team against the inevitable adversity. When you need to add more talent, thoroughly vet people for the right competencies, mindsets and team player abilities. Creating a dream team poised to withstand turbulence is paramount.
Poor Product
In 2016 consumer IoT startup Electric Objects shuttered after raising $15M, due multiple product issues that didn’t resonate with customers. Avoid their fate by never losing sight of the end user experience throughout development. Map out exactly who you customer segments are and what motivates their purchase decisions. Speak to them frequently even as Produkt, elicit honest feedback through use cases and prototypes before sinking months of engineering time, and implement an agile design process that loops in user input often. What constitutes quality and polish can be surprisingly nuanced and subjective – so resist the temptation to only surround yourself with cheerleaders who share your narrow worldview.
Lack of Business Model
IoT startup Pachube secured a healthy $17M in funding, only to dissolve 5 years later without ever settling on a viable business model. While your priority is understandably perfecting your offering initially, you must architect how to create, deliver and capture monetary value from day one. Plot out multiple potential models quickly ranging from transactional like sales, subscriptions, and licensing to indirect ones like hosting, affiliate commissions or advertising. Stress test each with market research. Then double down on the 1-2 most scalable and lucrative aligned with your resources and customer preferences. The elusive product-market fit formula can only be unlocked once both compelling product and monetization intersect as Snapchat and countless others have proven.
Ignoring Customer Feedback
In 2015 dining feedback startup Fabriq boasted “tens of thousands” registered users which logically seemed poised for hockey stick growth, yet they permanently closed shop just months later. Why? Founders got blinded ignoring negative user feedback flooding in. Treat current users like gold – meticulously gather feedback through surveys, NPS scores, app store reviews, social media complaints, and customer advisory groups. Then actually listen, with an open mind, to frustrations and suggested improvements. Prioritize addressing major pain points swiftly over trying to be right. If churn starts exceeding new user sign ups or you see lower engagement, something is very wrong. Continually refine based on behavioral data vs vanity metrics like downloads that mask retention issues.
Marketing Mishaps
In 2019 women’s healthcare startup Gennev had to abruptly shutter just a year after launch. They failed to effectively get the word out cost-efficiently to raise awareness and acquire new customers. Marketing can never be an afterthought since even the best products and services stay invisible without visibility. Of course resources are finite for startups so ensure efficiency by researching where your buyers are actually consuming relevant content online and offline. Build owned channels suited to your brand voice and audience relationships. Partner selectively with credible publications and influencers aligned to your positioning. Factor in sufficient budget for experimental paid marketing across search, social and display to identify higher converting platforms and messages. Watch metrics diligently to double down on what works. And ultimately craft marketing that speaks directly to the outcomes your product delivers rather than focusing disproportionately on features to more persuasively connect with audience motivations.
Ignoring Competition
While competition validates you’re pursuing a viable idea, underestimating opponents can destroy startups. Social app Yik Yak achieved wild popularity on college campuses seemingly overnight. However founders downplayed competitive threats from Instagram and Facebook, which soon released features copying Yik Yak’s core functionality. Just two years after launch Yik Yak had to shut down. You must relentlessly track products serving similar use cases and monitor their traction and direction. Assume incumbents will replicate any successful features you pioneer. Maintain a competitive advantage by continually enhancing UX and community engagement. Strategically identify white space opportunities where needs are underserved. And have contingency plans ready if “copycats” do materialize.
Scaling Too Fast or Too Slow
Miscalculating the timing and pace of scaling up proved lethal for furniture ecommerce pioneer Hayneedle. After early stability, major VC funding let Hayneedle rapidly expand inventory, distribution footprint and headcount without sufficient infrastructure to control costs. By 2009 they couldn’t rightsize quickly enough when the recession hit. Scale too slowly however and better funded players will exploit opportunities faster. Plot expansion judiciously based on leading indicators of product/market fit and clear milestones that warrant added complexity. Idealize scaling up revenue driving functions first over back office. Bring on senior execs with experience expanding high growth companies. And ensure scaling choices align to long term profitability projections.
Legal and Regulatory Challenges
In 2016 fintech pioneer Zenefits was valued at $4.5B. However failure to comply with insurance regulations resulted in massive fines, the CEO’s resignation, and layoffs of most staff – permanently tainting the company. In heavily regulated sectors like finance, healthcare and transportation, legal oversight can make or break startups if not respected. Consult experts early on to fully understand requirements for licensing, data privacy, transparency reporting and appropriate operations. Build compliant processes and systems from the outset rather than slapping on at the last minute. Treat compliance as an ally that earns customer trust. And cultivate a culture embodying integrity. One ethical slip up could spell disaster.
Burnout and Lack of Passion
Finally, startups live or die by the grit, perseverance and passion of founders. So founder fatigue or losing sight of the vision can destroy once thriving startups. Managing wellness and motivation amidst extreme stress is vital. The early days are fueled by adrenaline but are unsustainable. Set boundaries on working hours, take time to recharge, and don’t neglect personal relationships. Transparency around mental health boosts team support helping you shoulder the load. Also remain connected to customer experiences and industry innovation to continually re-energize around problem solving.
Consider bringing on co-founder with complementary strengths if solo founding. Finally question whether leadership is still the right role if your intrinsic passion fades over time. Recognize when you may be the one holding the startup back. Pivoting founding teams, rather than closing up shop, often successfully gives startups a second wind.
