Mistakes are quite common for startups. Sometimes missteps are growing pains and learning opportunities, but often, for new ventures, they can be the difference between success and failure.
Startups have a very low success rate. In fact, almost 50% of startups fail within the first five years. Therefore, it’s important for entrepreneurs to be aware of the most common mistakes of startups and how they can avoid making them when growing a startup.
Inability to Adapt
To survive, sometimes startups need to pivot their business strategy. For instance, Chipotle started out as a fine-dining restaurant and has now grown into a fast-casual dining experience. Amazon began as a book retailer and now serves as a merchant marketplace. One of the best examples is the cellular device company, Nokia, that started out selling rubber boots.
Consumer demands change, technology evolves, and unpredictable events transpire. Inevitably, your startup will face challenges. Some may require you to completely rethink your business model or strategy.
If your startup cannot adapt to these changes, it will struggle to survive. While these changes can present a hurdle, you should approach them as opportunities.
For instance, Netflix started out as a DVD delivery service. Then, they saw consumer and technology trends suggesting that streaming media would become the successor to DVDs. Therefore, Netflix pivoted to focus its attention on their streaming product. They created an unprecedented streaming product and are one of the most dominant names in the streaming service industry.
If your startup faces challenges or a changing landscape, don’t be afraid to pivot.
Mistiming the Launch
Timing is everything for a startup. If you wait too long to launch, customers have already found an alternative solution. If you rush your idea to market, you risk quality control issues or other mistakes that cause a poor user experience.
When something is so important to a company’s success, it also becomes a potential pitfall. That reality is certainly the case with timing. Mistiming the launch of your startup is one of the most common mistakes. It’s important to find a balance between speed and quality.
If you wait until everything is perfect, you’ll never launch.
Not Having the Right Team
Successful entrepreneurs understand that they can’t do it on their own. A recent study of failed startups uncovered that 23% failed because they didn’t have the right team.
Because startups are typically bootstrapped, meaning they operate as efficiently as possible, they usually have a very small core group of employees in the early stages.
These core “team members” dictate everything from product design to branding. These employees need to buy-in to the startup and must be willing to sacrifice for the bigger picture.
That sacrifice typically refers to monetary return. Core members of startups usually work for perceived future value as opposed to immediate reward. That’s why many early employees of startups get equity instead of full salary.
The right startup team is more than just people who are willing to work below their current market value. It’s about finding quality employees who have a voice and are willing to challenge ideas. One of the biggest hiring mistakes is finding people who think and operate the same way that you do.
People with similar strengths also tend to have similar weaknesses — try to find team members who offer different ideas and opinions than your own. This will help you build a unique and holistic team.
If you want your startup to succeed, start by building a successful team.
Mismanaging Cash Flow
Cash flow management is one of the main reasons businesses fail, not just startups. However, because startups typically operate with little cash reserves, efficient cash flow management is even more important.
Cash flow is the movement of money into and out of a company. Early on, you may operate with negative cash flow if you are spending more than you are earning each month. This is typical for a startup that is trying to fine-tune their product or service while also spending marketing dollars to acquire new customers.
Eventually, you want to reach a point where you are consistently operating with positive cash flow. When you operate with positive cash flow, your startup is generating enough cash every month to pay for its expenses. Positive cash flow for a startup is a sign of a healthy and sustainable business.
If you are not strictly monitoring your cash flow, it can be very difficult to make strategic decisions. Financial awareness is incredibly important for every business, but especially startups who need to justify every expense.
If you want to avoid cash crunches, make cash flow management a priority.
Deciding to launch a startup is a huge decision, and it’s not one that should be taken lightly. That same precision and carefulness should carry over to the actual business itself.
With so many startups failing, it’s important to do everything you can to position yourself for success. Avoiding the common pitfalls mentioned above is a great start.
If you’d like to learn more about running a successful and profitable business, talk to the Valuation & Advisory team at Rivero, Gordimer & Company. With years of experience and a team of dedicated professionals, we can help you get your business where you want it to be!