Business Social

8 Common Startup Mistakes That You Shouldn’t Repeat

Everyone makes mistakes, but when it comes to a startup, even seemingly harmless oversights could cost you a lot in the long run. A global study conducted by CB Insights divulged that 42% of startups failed because their founders admitted that there was no market for their product, while 29% said they ran out of cash, and 23% claimed they didn’t have the right team. Here are some pointers before you make the same mistakes too.

#1 Being a jack of all trades

As entrepreneurs, we frequently put pressure on ourselves to know it all and to always be on-point. However, did you know that it will keep you from expanding your business in a timely manner?

Let’s take Pippin’s Plugins, a resource for WordPress plugin development, for an example. Founder, Pippin Williamson, said that the biggest failure, in terms of trying to grow the business and making it successful was thinking he could do everything himself.

pippinsplugins

Pippin’s Plugins

He spoke to clients, built the products and  managed customer support, for more than four years before coming to his senses. While everything worked out fine in the long run, it definitely slowed down other process that he could’ve worked on at that time.

What can you learn:

  • It’s okay to outsource your work, if it means that you can focus on other important things to scale your business.

#2 Not understanding the financial model of the company

One of the keys to building long-term success is getting and retaining customers. To do this you need to be able to balance between these two variables – Cost to Acquire Customers (CAC) and Lifetime Value of a Customer (LTV), which also means the ability to monetise those customers.  If you don’t don’t understand your business model, you will struggle to grow your company fast enough and maybe even meet a few blunders along the way.

Last year, a virtual assistant startup, Zirtual shut down overnight and laid off about 400 employees via email. According to a blog post by its Co- founder and CEO, Maren Kate, the cost of running the company was greater than what it was bringing in, and she was unable to raise additional funding to sustain it for long.

Zirtual

Zirtual

Here’s the key part of her post:

“Burn” is that tricky thing that isn’t discussed much in the Silicon Valley community because access to capital, in good times, seems so easy. Burn is the amount of money that goes out the door, over and above what comes in, so if you earn $100 in a month but pay out $150, your burn is $50.

Zirtual was not flush with capital — for as many people as we had, we were extremely lean. In total we raised almost $5 million over the past three years, but when we moved from independent contractors (ICs) to employees, our costs skyrocketed. (Simple math is add 20–30% on to whatever you pay an IC to know what it will cost to have them as an employee).

And at the end of the day… “burn” is what happened to Zirtual.

Thanks to Startups.co, a startup launching platform, Zirtual was acquired for an undisclosed amount and the company is now backup and running.

What can you learn:

  • To stay afloat, make sure you understand your business model before making any decisions.
  • Remember that a well balanced business model requires CAC to be significantly less than LTV.
  • If you can monetise your customers at a higher rate than the cost to acquire them, you probably have a great business on your hands.

#3 Skipping the business plan

We believe that all business owners are cognisant of the importance of a business plan. It’s the most the single most important step in laying the groundwork for future success. You do not want to end up like Lumos, a hardware startup in the internet of things (IoT).

Lumos

Lumos

“After five months of toiling 14-hour days, making a hardware IoT (Internet of Things) product from scratch and spending lakhs of rupees of investor money, it suddenly dawned to me and my two founders that our product won’t sell.” – a snippet from an article by the co-founder Yash Kotak, in yourstory.com .

He said that they made 7 mistakes. One of them is they did not do the due diligence on the idea before starting to build the product. This shows how important a business plan is.

What can you learn:

  • Don’t take your business plan lightly.
  • Improve it accordingly based on the insights you’ve gathered. We’ve talked about this in our previous post.

#4 Choosing The Wrong Investor

You need to be clear about your values for the business beyond the money that you want. Though it can be tempting to accept an offer from anyone who can invest in your company,  make sure to weigh potential investors’ value-add before bringing them in.

According to David Levy, Co-founder of  TigerBow (a service designed to match a virtual address with proxy physical addresses) while it’s tempting to accept any offers for funding, you shouldn’t raise money from people who aren’t familiar with startups.

TigerBow

TigerBow

He shared that aside from the fact that they got little (non-monetary) value added from these investors, people who are unfamiliar with investing in startups and the risks and challenges of building a company will drive you bananas.

What can you learn:

  • Never mistake common interests for common vision.
  • Put in the extra work to find investors who know the startup landscape.

#4 Hiring the wrong people

For startups that want to scale quickly and build momentum fast, it’s tempting to hire immediately. Nevertheless, hiring subpar talent, who aren’t the right fit for your particular project will stunt your startup’s potential.

KiOR was a startup dedicated to replacing our gas needs with biomass alternatives. The company was backed by Vinod Khlosa, said to be the most successful venture capitalist of all time based on Fortune Magazine, with former Secretary of State Condoleezza Rice sitting on the company’s board and  former U.K. Prime Minister, Tony Blair as a senior advisor. On top of that Bill Gates committed millions to its mission as well.

KiOR

KiOR

Although KiOR had the backing of an impressive list of names to support its daring ambitions, it stopped producing biofuel after just two and half years after its groundbreaking at their main Mississippi facility. By late 2014, it had filed for bankruptcy.

While the reasons for the company’s failure are still the subject of heated debate and controversy, KiOR’s former CEO, Paul O’Connor, agrees that perhaps the company’s most consequential failure was poor hiring decisions.

He said that the absence of people with real technical experience running energy facilities, impeding operations and mismanaging resources had hurt the business a lot.

What can you learn:

  • It’s vital to take your time to fully examine your candidates. In case, you don’t have the budget to hire a full time, consider taking on freelancers and getting to know them.
  • You should hire experts to take over vetting process process for you, if you’re hiring back-end engineers and all of your founders have non-technical backgrounds.

#5 Not listening to customers

Whatever you do, no matter how hectic your operations is – never neglect your customers/clients. They are your source of business at the end of the day. Without them, your business is doomed.

DonebyNone learnt it the hard way. The company was first launched as Handspick in February 2011, and a year later was rebranded to DoneByNone. However, it wasn’t long until they ran into trouble.

DonebyNone

DonebyNone

According to TechInAsia, DonebyNone was so preoccupied with the backend operations that they started to neglect their customers. The article also mentioned that most of the feedback of customers on its Facebook said that the startup failed to handle the demand or deliver products on time.

Due to lack of customer satisfaction and the inability to raise any investment, the founders quit the business, but remained as shareholders.

What can you learn:

#6 Launching too early or too late

You should be wary about when to launch your product. Too early – early adopters may not like it or find it hard to adapt. Too late – you might be competing in a saturated market. So, when exactly should you launch your business? Well, an in-depth market research can surely help in making that decision.

A good example would be Airbnb. The startup launched their service during the economic downturn. They provided solutions to those who are looking for cheaper options when they travel or more avenues for homeowners to generate additional income.

KeenHome

KeenHome

Meanwhile, a bad example would be KeenHome. In foundrmag, The co-founder, Nayeem Hussain said that his first mistake was to launch a crowd-funding campaign too soon.

He shared: “In hindsight, our company/product was far too early-stage for us to instill the requisite confidence that we would be able to deliver a working product to backers. We achieved a mediocre outcome (US$40,000 raised—hardly a referendum on demand) and were constantly having to explain these results to investors.”

Nayeem said that, if he had the chance to do it all over again, he would have waited until the company had a well-functioning prototype and a solid team before launching a crowd-funding campaign.

What can you learn:

  • Before launching a product or campaign, make sure you have the needed capacity, a solid product and market to tap into.

#7 Overspending

More often than not, startups would spend their money on unnecessary things – fancy workspace and furniture, flashy advertisement, outsourced PR and more. iParents, a social network for parents and families, made the same mistake.

Nine months after opening, the site had 70,000 members.  Venture capitalists were interested in investing about US$3 million, if the network could get to 100,000 members.

iParents.com

iParents.com

That spurred Don Milley, the founder to hire a marketing company in Florida to handle online outreach and run a photo contest to try to get to 100,000 members. He paid US$18,000 for the work on top of the money spent to enhance the functionality of the web. Unfortunately, he never heard from the company again on the return of the investment (ROI). The had to fold because they were out of working capital.

What can you learn:

  • Spend money on the things that are truly important, which will position your business well for long-term success.
  • Do some research first on things that you’re going to spend on.

#8 Ideas that are not serving the market’s needs

Sometimes you may have good ideas, but that does not necessarily mean there’s a market for them.

VidPays – an incentive-based advertising platform was founded with the goal to solve the problem of advertiser-user communication. Though it might solve the problem of the advertisers, it does not appeal to the market as a whole.

VidsPays

VidsPays

Officially launching their platform around the middle of the 2014, they failed to gain the critical mass that was necessary to sustain their operations. The founder realised that people just wouldn’t watch video ads, even if you paid them to.

What can you learn:

  • Market research is a must and testing your product is crucial if it’s new to the market.

 

Now that you know the mistakes made by other startups, we hope that you can learn something out of it.

 

P.S. To help you focus on your company’s goal, let us know if you need assistant in terms of lead generations, data mining, data maintenance and customer support, don’t hesitate to ask us, Supahands, for help.

No obligation, No contract. Just Supahands


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1 Comment

  • Reply
    Shivam Sahu
    January 19, 2018 at 10:02 pm

    Hi Juinn,

    Indeed a great article about startup mistakes. You really had shared the major mistakes done in the startups these days and It will be great If you could avoid doing these mistakes.

    Most of the young people are now getting into startups but I have seen a lot of them not maintaining the quality of their team members. For a successful startup, It is always important to have a strong and dedicated team and should never avoid the any regular mistakes done by any of the team member.

    I am glad that you have covered this topic in a detailed manner and Thanks for sharing it with us.

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