Recently many startups have been failing terribly before experiencing a positive cash flow. Despite favorable projections of future financial success, most startups are unable to succeed due to financial mismanagement or failures in general business administration.
This article tries to analyze the most common mistakes that kill startups.
Underestimating the business capital requirement
Most entrepreneurs fail to recognize the importance of having adequate capital to drive their ideas. They fail to realize how much of that capital will be expended before they experience any revenues or reach a break-even level. Many startups are not initially profitable and have to use their investment capital to operate for a limited period or runway. Entrepreneurs need to determine how long this runway will be by realistically assessing their operating expenses and checking if that provides enough time to reach financial viability.
Doggedness and obstinacy
Every successful enterprise ought to have a vision or a solid guiding principle that directs the enterprise to its desired future. Although it is generally advisable to stick to this vision even when you are faced with challenges, a startup must be flexible enough to adapt its vision if it will undermine the business’ viability. Many startups fail because their founders stubbornly attempt to stick with their original vision instead of being open to new ideas and pivoting their business to make it more successful.
Poor business location
The location of your business is a key determiner of whether it will succeed or not. Geographical positioning of a business in respect to the source of raw materials, expert services, market availability among others will actually be a vital element in your startups’ success. For tech startups, which live and die by the skillsets and innovations of their team, it is particularly important to make sure to choose a location near a large, well-developed talent pool.
Targeting a small niche
Many startups fail due the misconception that if you venture into a smaller market you will not face as much competition. Focusing on a niche market reduces the number of potential customers, intensifying the importance of client retention. The smaller the market, the fiercer the competition to hang on to clients. Before making any assumptions about a market, niche or otherwise, a startup should perform some due diligence and research what the available market share is and how they compare to the current players in that category. This helps focus a startup on areas of their concept that distinguish them from competition and provides more confidence to enter any market, large or small.
Not being original
Some startups take a concept that already exists and look to establish themselves in a market simply as an identical alternative to their competitors. Believing that through strong marketing and sales, they too can acquire a share of a lucrative market. Most of these ventures are unable to achieve their goals because they neglect to distinguish themselves from their competitors through originality or innovation. Companies that had earned a reliable reputation and honed their execution of the concept through years of experience make it nearly impossible for newcomers to displace them without something to tip the scales.
Employing the wrong people
In the rush to fill departments with qualified personnel, many businesses don’t take the time to build a team that has the potential to grow. Assuming that an experienced is all they will need to succeed, they overlook individuals that have raw talent and the ability to grow with the company. While selecting proved veterans of a field will get things off to a stable and predictable start, it’s the latter group that will generally look to exceed expectations in order to prove their value.
Most of us have had that moment where we’ve come up with a great idea but never executed on it because we lacked the skills to bring that concept into reality. This is exactly why most successful startups begin with a core group of founders, each representing a distinct skillset necessary to launching the concept. Think about what part of the business you are strongest in contributing to and find a couple partners that can fill the remaining gaps. Unless you are a super-genius, attempting a startup alone will eventually lead you to hit a wall that you can’t pass, causing you to either abandon your dream or waste so much time learning the skills needed that you’ve missed the window of opportunity.
Trying to compete with the industry giants
Large businesses have extensive resources, experience and established reputations, which most startups lack. This gives them a significant advantage in controlling costs and delivering polished solutions. Going toe to toe while your startup is still attempting to establish itself is a recipe for disaster. Instead, focus on smaller aspects where your concept has a unique advantage and build from there. As you quietly acquire a critical mass of market share and stabilize your finances, you can start to expand your scope to compete more directly with these juggernauts.
Lack of a target market
Each entrepreneur should seek to solve an existing problem in the marketplace or improve on an existing solution. However, it is just as important to determine who the audience for that solution will be and whether there’s an opportunity to earn revenue by providing it. Your investors will expect you to demonstrate how you’ve used that information to justify your projected growth before making a decision to commit any funding.
Launching your startup too fast
Many start up have to shut down due to early launching. Your first products should be impressive to early adopters. This initial audience typically has high standards for new technologies or services. Winning them over can make the difference between entering a market to the sound of thunderous applause or falling flat with a loud thud. Take the time to ensure that you are releasing high quality solution at launch and be prepared to address weaknesses that can be improved upon in future iterations.
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