Countless startups fail every year. But there are not
countless reasons that they fail. “I’m talking to
entrepreneurs three or four times a week, and
they’re all coming to me with the exact same
issues,” says Tarek Kamil, a serial entrepreneur with
five launches under his belt (most recently,
as founder and CEO of the communications platform
Cerkl).
“People are falling into the same traps over
and over. If they could just avoid those common
mistakes, the chances of their company being
successful would significantly increase.”
He’s not the only one who thinks so. Mentors, VCs
and serial entrepreneurs all say they routinely
see entrepreneurs fall prey to a common set of
mistakes. So what are they? You should know.
1. Not prepping your life
No one would show up to run the Boston
Marathon without training first. The same should be
true of startups. You need to warm up with
some prelaunch training, from getting proper rest
and nutrition to shoring up relationships. “You have
to be rigorous about making sure you’re ready and
that every area of your life is in check,” Kamil says. A
startup will take a toll on your life, guaranteed.
If friends and family don’t understand what’s about to
happen and are not supportive of your vision,
they’ll cause personal misery, not to mention a
major distraction from the business. Have a candid
conversation to manage expectations. “Tell them, ‘I’m
going to give this my attention -- and while it doesn’t
mean you’re not important to me, it may feel that
way,’” Kamil says. “You need to make sure
these areas are buckled up, because
entrepreneurship will shine a light on whatever parts
of your personal life are weak.”
2. Confusing a product with a business
In this age of apps, Atlanta-based serial entrepreneur
and company strategist Eric Holtzclaw says wannabe
’treps don’t always know how to build upon their
success. “A product solves an individual need,” he
says, “but a real business has something customers
will come back for again and again.”
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Here’s how to make the distinction: Do you have
potential revenue streams beyond the customer’s
initial purchase of a product? That’s a key
factor for prospective investors, who “want to see
what the next thing is and want to make sure that
there’s some longevity beyond what you’re
offering today,” Holtzclaw says. “Are you going to
license the technology to someone else? What does
the business look like in three or five years? That’s a
big concern from an investor perspective, and that
will help you determine if you even have a business
at all.”
3. Not paying for expertise
We say this with full respect: You’re not good at
everything. You can’t be. And yet, every part of a
business should be done expertly -- particularly the
tricky stuff like taxes and legal issues. “Structuring
not only the company but also potential
investments in the wrong way can come back to
haunt you,” says serial entrepreneur Greg Rau, COO
of Ridago, a hardware engineering firm based in
Oregon.
So where it really matters, don’t download some free
online guide or think you can handle it yourself. Find
an expert whose job is to know exactly what you
need to do. The place Rau says entrepreneurs are
particularly in need of an expert eye: “When drafting
the terms you accept investment on,” he says, “if you
don’t pay attention to things within the terms sheets,
like liquidation preferences, that could hurt you on
the future sale of the company to the point where the
founders may end up with nothing.”
4. Ignoring data
“Magical thinking can kill any business,” says Lisa
Stone, the San Francisco–based cofounder of the
online community BlogHer. You can’t just believe
you’ll succeed—you need to actually crunch some
numbers and figure out if you will succeed. There has
to be data that validates that your big idea is real, or
at least provides a leading indicator that it could
be. Once you collect that data, use it to create key
performance indicators or milestones to show your
idea or business is progressing.
Stone speaks from experience. In the early stages of
BlogHer, she and her partners were told that women
would never blog in large enough numbers to
support an annual conference. But the data they
collected from their first small test conference
confirmed their belief that the plan would work. The
event, organized in four months, sold out with more
than 300 women showing up and netted the team
$60,000, which was poured back into the company.
5. Scaling too quickly
Here’s a scary number: Seventy-four percent of high-
growth internet startups fail because they scaled too
fast, too soon. (That’s according to a report by
Startup Genome.) “It happens a lot,” says Erik
Rannala, cofounder and managing partner of Los
Angeles–based Mucker Capital. “People raise money,
think they’re flush with cash and then spend it on the
wrong things. But by the time they realize that
spending isn’t getting them anywhere, it’s often too
late.”
What are they spending on? Oh, anything -- from
marketing to hiring too many employees too quickly.
But the basic problem is the same: They’re draining
the budget on things that aren’t essential
to expansion or determining whether their business
is even viable. “When you start to spend money, you
need to either have more or have a way to generate
more,” Rannala says. “Because if you run out of
money before you actually hit any real business
milestones, you’re going to have a very hard time
raising more.”
6. Clinging to the wrong idea
“You have to realize that sometimes you’re pushing
up the wrong hill or you’re pushing into a brick
wall you’re never going
to break through,” Rannala says. This mistake is
especially prevalent among first-time
entrepreneurs and people entering an
unfamiliar market -- folks who just fall in love with
their original idea and can’t recognize how much it’s
failing.
Don’t go on gut. Go on evidence. Evaluate how your
product fits in the market. Maybe you run
experiments on what tactics or product tweaks draw
in customers the best. Or maybe you closely track
how much it costs you to acquire each customer --
and if small tweaks make that cost go up or down.
“For consumer internet companies, for example,
there are five or six tried-and-true ways to acquire
customers,” Rannala says, “and if you try them for six
or 12 months and none of those tactics are working,
that might be a sign that there’s something wrong.”
7. Failing to delegate
It’s perhaps the most classic problem in
management: Rather than give up control and trust
others to take the reins, you try to do everything
yourself -- and fail. The instinct is understandable, of
course. “Most good entrepreneurs are very
strategic, so they don’t want to have to worry about
whether the fine details are being accomplished,”
Holtzclaw says.
So, what to do? Delegate, obviously. Start by drawing
up processes, almost like a guidebook for how to do
things the way they should be done. That way you’ll
feel calmer, and your employees will have the
direction they need. “If you don’t do that,
you’ll hire too quickly because you’ll think, I’ve got to
bring somebody in because I’m so overwhelmed,” he
says. “Well, if you’re overwhelmed and no one can
take anything off your plate, you’re never going to get
out of that state. You have to delegate.”
8. Thinking money solves everything
Struggling entrepreneurs often think that if they can
juuuuust raise another round of financing, their
problems will be solved. But money doesn’t work like
that. It can’t solve a fundamental issue with a
business model, says Carter Cast, professor of
entrepreneurship at Kellogg School of Management
and venture partner at Chicago-based Pritzker Group
Venture Capital.
“If your business model isn’t sound, throwing money
at it is not going to work,” Cast says. “You have to fix
the problem first, and then raise the money. Doing it
the other way around will only get you in more
trouble.”
9. Underestimating how long sales take
Let’s get this out of the way: Sales take time. Many
startups even think they can close a big
enterprise account in three to six months -- but in
reality, a deal like that can take more than a year. And
if your business plan doesn’t account for that, you’re
going to be in trouble.
“They have to sell in to the c-suite, the line
manager, the technology folks and the product
manager. There are multiple levels of approval, and
then there’s a scoping and discovery and
implementation process,” Cast says. “I’ve seen many
companies run out of money because they have been
too aggressive in estimating their timelines.”
10. Fearing failure
“Fail fast” may be a popular catchphrase, but Kamil
isn’t a fan of it. No matter how much entrepreneurs
may glorify failure, there’s still that scary word: fail.
And nobody wants to be the opposite of success. “It’s
really the wrong term, because ‘failing’ means there’s
no benefit, and most times that’s just not true,” he
says.
Change the mindset. You didn’t fail -- you ran an
experiment that will improve your next business. “It’s
learning,” Kamil says. “Although it hurts a little bit
each time, now you’ve learned something, and you
can apply that lesson to move forward and make
your business better.”
So, were these still 10 types of startup failures? Sure,
technically. But that just means they’re also 10 ways
to learn.
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