Over 90% of Startups often fail in their first three years of operations and many more fail due to premature scaling. The few that make through to maturity often do so by avoiding or learning from common mistakes that many other make. We discussed with a few Startups to learn from their experiences with particular focus on mistakes that set them back dearly. Here are a few of the mistakes Startups make and how you can avoid them
Business Plan – Business Plans is perhaps one of the most important document you must have when you starting a business. It basically outlines what your business is about, who the target market is and how much profit it can make in its first year. Unfortunately, most Startups see their business plans as just a fluffy document and never go back to read it. Business Plans should be read, reviewed and updated.
Getting the wrong cofounders – A founder of a Startup recently admitted one of the biggest mistake he made was believing all he needed were a partners who had skills that he obviously lacked. Unfortunately for him, the Startups failed soon after despite partnering with people who had the right skill. He realised that the reason why it failed was because they were not committed enough. When you hunt for cofounders make sure they not only have the skill and quality that you require but that they also are ready to show commitment.
Going solo – Whilst too many cooks spoil the soup it is also important to know that you can’t always do it alone. Modern day Startups require more than one owner to survive and acknowledging this early enough is very crucial. Apart from getting the right co-founders, you also should be willing to offer equity to other investors in exchange for cash who may not be willing to partake in the day-to-day running of the business. Like someone once said it’s better to have 10% of a N1billion than 100% of nothing.
Hiring wrong employees– One of the most important decisions founders of a startup must make is to find the right employees. To do that Startups must identify the positions to be filled, the qualifications and character of the employee and years of experience required. It can be painstakingly slow and excruciating but it is absolutely critical to get the right employee if you are to move forward.
Scaling to quickly – Another common mistake Startups make is scaling too fast. Some start to spend money prematurely on marketing, promotion, hiring employees when all they need to do is spend money on research and making their product or service better. The implications of this is that they end up racking up losses in the first few years of the business making it difficult to breakeven when they eventually start making profits. For some startups, it often leads to them been cash strapped as investors are reluctant to put in more money
Underestimating funding requirement – Funding is the live wire of any business and without it businesses go bust. It is especially critical for Startups to access what their funding requirement is in their formative years. Most Startups often fail for this reason and find it hard to come back from this failure. Without funding founders find themselves struggling to survive instead of innovating. Before you know it frustration sets in and then business eventually fails.
Raising funds too quickly – As mentioned understanding your funding requirements is very important to ensuring that your business stays afloat. One of the mistakes Startups make is not knowing exactly when to obtain funding. Research shows that founders of successful startups often keep a good chunk of their equity when they receive money from venture capitalist at a time when the Startup has already started making money. This is because investors value Startups more when they have clear revenue streams than when they are just trying to stay afloat.
Ignoring profits over revenue growth – Some startups prefer to focus mostly on numbers such ass revenue, subscriber growth, traffic etc. over profits. Whilst these are important factors venture capitalist look out for when deciding to fund a business, it is also important to have one eye on profitability without actually making profits. One way to achieve this is to make sure the business can actually generate enough surplus cash after paying for salaries but before spending on promotions and advertising.
Lacking focus and direction – Businesses that fail to define their focus and how to achieve their objectives are doomed to fail. Startups must clearly decide what their objectives are and how they intend to achieve it. If anything must change it must be how to achieve their objectives and not the objectives itself.
Having a poor distribution network – Every business needs a route to market strategy if it is to sell its products or services. Startups that fail to realise this often fail to gain any market share and often fail with time. Once you identify your target market next up is to figure out how to get to them. This is where investing in the right distribution network becomes necessary.