8 out of 10 startups fail, and if you’ve started a new business or planning to start one, the chances of you becoming one of the 80% closed startups are high. Fortunately, the reasons why startups fail are well-researched and documented. So as a new startup owner, you can analyze the common mistakes startup owners make and avoid being one of the 20% businesses that succeed.
Ready to get started? Let’s dive into some deadly mistakes startup owners should avoid at all costs.
1. Investing your money in the wrong place
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29% of startups fail because they run out of cash.
Entrepreneurship can be exciting. But many young entrepreneurs tend to get so excited by the thought of starting a new business that they end up making hasty decisions. Most startup owners invest big bucks in opening a fancy office, developing a complicated SaaS website, and hiring more staff than needed.
This might make you look like a boss, but going overboard without understanding how the industry actually operates can lead to detrimental outcomes. While having an office and a skilled staff is critical, making these investments too early can empty your pockets. Why would you need a lavish, expensive office if you don’t have any customers yet? Why launch a full-fledged website without a proper content marketing strategy and sales funnel?
Investing in your business is important, but what’s more crucial is the sequencing of the budget you choose to spend.
2. Wrong business location
With most business operations getting digital, new business owners tend to overlook the importance of choosing the right location for your business. They get too caught up in perfecting the office interiors that they underestimate if their location is ideal for their customers as well as the employees.
Opening an office in an isolated area can help you save some rental costs, but it could it difficult for your staff to make it on time every day. Besides, the money you spend on security deposits and rentals will go into vain if your business is located in the wrong place. No matter how strongly you build your online presence, your business should be physically accessible to at least your local customers.
3. Failing to identify your ideal customers
42% of startups fail because their business model is not viable. It’s an old business saying: “It’s not about what you sell but what your customers want.” You can have the best product in the world, but if people don’t want it, you’ll make zero sales.
Failure to identify your potential customers based on their demographics and characteristics can lead to delayed ROIs and huge cost overruns. So, before stepping into the business, know whom exactly are you selling to. Before creating any product or service, spend some time defining your target audience. Identify their pain points and hurdles to make a product that resonates with their requirements.
4. Too quick to hire
23% of startups fail because they don’t have the right team. In fact, about 95% of organizations hire wrong people every year. Wrong hiring can be of two types:
- Hiring people who are incompetent for their role
- Hiring highly-skilled people for their wrong role at the wrong time
Another common mistake is to hire too many people in the initial phase of a business. When starting out, running a company with freelancers, sub-contractors, and part-timers is better than having full-time staff. Once your company has developed a sustainable stream of income, you can slowly cut-down your outsourced network and replace it with in-house employees.
5. Defensive marketing
So, you have a great product and a huge target market. But still, you don’t make any sales. Most new businesses are afraid to expose them in the beginning. The initial phase is also the survival phase fort a business. In this period, you should focus on strategic marketing efforts and getting your brand and product in front of as many people as possible.
Hire expert marketers or outsource your marketing efforts. Work towards developing an effective marketing plan and allocate a reasonable amount of budget for it. From the very beginning of your marketing efforts, keep an eye on the ROI to see what’s working for you and what isn’t. And don’t stick to passive marketing. Become direct and aggressive: send cold emails, do cold calling, run paid ads, and more.
6. Not developing a solid company culture
13% of startups fail due to disharmony among teams and investors. The employees, teams, managers, and investors will not be on the same page if the owner fails to build and maintain a solid company culture. Due to a lack of expertise and experience to hire the right people, they end up taking up people that don’t fit the company’s work environment. It badly affects the productivity of both the employee as well as the overall organization.
While it can be difficult, new business owners should have a properly structured hierarchy in mind. Hiring people and assigning job roles randomly can cause friction among the staff, especially if you place an experienced employee equivalent to a fresh graduate.
7. Losing focus or passion
Most people start a business because they are passionate and focused on starting something of their own. So, it might sound counterintuitive, but a whopping 21% of businesses fail due to the lack of focus and passion. You may be tempted to start a business because you hate your job, or your manager tortures you every day. Starting a business should not be an emotional decision. Instead, it should be an analytical call in which you should clearly ascertain the following factors:
- What do you want from your business?
- What can you expect from your businesses?
- Is this idea really viable?
- Am I determined and focused enough to run this business for the next 30 years of my life?
Starting a business can be an emotional decision, and it’s completely fine. But make sure to do something you’re passionate about. Moreover, do something that is in-demand. For instance, let’s say you’re a bookkeeper at a local company. You’re frustrated with your job and want to start a new business. But all you know is accounting. Will an accounting business in 2020 succeed? Most businesses facilitate their accounting with accounting software. And bigger companies outsource it to bookkeeping companies. So, quitting your job and starting an accounting business might not be the best idea.
8. Overlooking contracts and legal agreements
As a new business owner, it is obvious for you to be on your toes to take in new business partners and collaborations. But sometimes, startup founders felt so excited to land new clients that they overlook the necessity of signing legal contracts for every confirmed deal. Not only deals and contracts, but some startups also fail to maintain proper employee documentation, which leads to HR-related problems.
If you are a startup owner, you need to learn fast, move fast, and find a way to overcome obstacles that come in your way. Don’t wait to make mistakes and learn from them. Instead, learn from other’s mistakes and use the learnings to make the right decisions.
Wrapping it up
Starting a business could be the most exciting decisions of your life. It can be a bucket full of emotions, such as anxiety, happiness, stress, sadness, anger, satisfaction, and more. But with around 100 million startups opening every year, the chances of your idea making to the line of success are low.
The good news is that you can avoid the few common mistakes discussed in this article to have the edge over your competitors and increase your chances of succeeding.
And if you’re not sure if your business idea will work, openly share and talk about your idea with other people. Use their opinions and suggestions to furnish your initial thought into a winning business plan.