Here’s the hard truth: Ninety percent of startups fail.
In other words, nine out of every ten startups will fail.
It’s the truth and there’s nothing you can do about it. But …
…if you can avoid the 5 deadly mistakes that kill most startups, there’s a high chance that your startup will join the 10% that succeeds.
I’m sure you often hear the phrase “Fail Fast” or “It’s good to fail.” It is true you can’t learn without failing. What they may not tell you is that failure can, sometimes, be very expensive, and can be devastating to a startup.
How about learning from other people’s failures? That would save you tons of money and time.
So what are the 5 deadly mistakes that could kill a startup before launch?
Mistake #1: Assuming You Know What The Customers Want
In the startup world, you must not make your decisions on mere assumptions. Many first-time founders do not know this. And that is why they fail. In a poll conducted by CB Insights, 42% of polled startups cited the lack of market need for their product as the number one reason why most startups fail.
This is the scenario most failed startups find themselves: They discover an innovative idea. They spend months turning the idea into a product. They spend more time designing and perfecting the product idea.
Then they launch only to discover there’s little or zero market for their idea. The startup is considered a failure. Months of hard work gone and little or nothing to show for it.
Such startups could have saved themselves valuable time and money had they took the time to turn their assumptions into facts.
There are two kinds of products:
- Vitamin (the nice to have)
- Aspirin (the must have)
Your startup’s product should be the Aspirin. Your product or service should solve a real pain your customers have.
Before writing a single line of code, or investing a dime into your startup, take the time to find what problems or pains your target customers have. Don’t try to create another product that solves the same problem the same way as your competitors.
You should dare to be different. Not for the sake of it. But for the sake of increasing the value so high that customers can’t help but buy from you.
Before you embark on a product idea, take the time to meet your customers and survey them. These are some important questions you should ask yourself before committing to any idea:
- Would people buy a product you’re about to create?
- How much are they willing to pay for your product?
- Does your product idea help them solve a real pain?
- Would your product be better than your competitors?
Mistake #2: Not Paying For Expertise
You may have a great product and a few million bucks in the bank, but if your startup lacks the right experience and personalities, you could be shutting down soon.
Having the right team and experience determines the outcome of your startup. One of the greatest mistakes you can make is to think you’re good at all things. You can never be, which is why you need experts to take care of things you can’t do.
For example, you need experienced people to take care of tricky stuff like taxes and legal issues. Downloading free guides online won’t teach you how to handle this tricky stuff. Find an expert whose job is to know exactly what you need to do. For example, hiring the right lawyer is very important to a startup. You need a lawyer to guide you so you don’t violate any government laws. You need a lawyer to tell you how to interact with customers, users, employees and the general public. Your lawyer will also ensure that founders know their rights and expectations in case there are disagreements.
You need lawyers when hiring employees, raising capital and obtaining patents for your products. Your lawyer will also ensure that things are going in the right direction and in your favor. For example, when drafting the terms you accept investment on, 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 that you may end up with nothing.
The need for a lawyer can not be over-emphasized. So is other valuable experts like designers, developers, industry consultants, SEOs and public relation professionals.
Mistake #3: Ignoring Important Metrics
Building a successful startup doesn’t happen overnight. It is also not magical. Anyone with the right mindset, experience and goal can do it.
But you can’t just believe that your startup will succeed. It doesn’t work that way. You have to know that your startup will succeed. How do you know if your startup will succeed? You need to first crush some numbers before you launch. That is how you know.
Most startups first release as beta versions to learn about their users or customers. You should do the same with your startup. Doing this would enable you to improve your product and its user experience. There are some important metrics you should be watching as you release the beta version of your product. If your startup is struggling to hit some goals during beta, that may be a sign that something isn’t right and needs to be fixed.
For example, if your customer acquisition cost (CAC) is high during beta, that may be a sign that you need to test cheaper or free marketing methods. If your churn rate (the rate at which customers stop using your product) is high, that may be a sign that you need to improve your product user experience or target different customers. These are more important metrics you should watch:
- Conversion rate (the rate at which your website visitors convert into customers or users)
- Recurring revenue (the total amount you’re making per month from old customers)
- Retention rate (the rate at which first-time users continue to use your product through the next month or year)
- Life Time Customer Value (the LTV is how much you expect to make from a customer during the time they are with your company)
The great Andreessen Horowitz blog has a list of 16 important metrics every startup must pay attention to.
Mistake #4: Having Little Or Zero Capital
A startup is already dead as soon as it lacks enough capital to execute ideas and plans. According to startup founders, the second biggest reason startups fail is because they ran out of cash.
As a startup, you’ll have to learn, test and improve different aspects of your product. This requires capital. Many of your tests will fail. Some tests would move your startup forward. But some tests would be expensive.
You might not be making profits at this point. That is why you need enough money in the bank to keep your startup alive during this testing phase.
Mistake #5: Waiting Too Long To Launch
Focusing too much on each feature and trying to perfect it before the launch day is a common mistake most startups make. And, it kills them.
There’s always a new feature to add. There’s always a feature to make perfect. There’s always something that doesn’t look good.
There’s a famous quote by Reid Hoffman, the founder of LinkedIn, it says “If you are not embarrassed by the first version of your product, you’ve launched too late.” This quote resonates with entrepreneurs.
The first version of most of the great products we use today were bad, if not worst. The first iPhone was worst. It lacked a host of essential features like MMS and phonebook search. There was no App Store back then. It was only available on AT&T whose network was ill-equipped to handle the onslaught.
If you wait too long to launch, your competitors may steal a march on you, gaining that vital first-mover advantage. Launching fast helps you get those important reviews and feedback you could use to improve your product.
Here’s a recap of the 5 key takeaways from this article:
- Never assume you know what customers want
- Don’t be afraid to pay for expertise
- Don’t ignore important metrics
- Don’t start your startup with less capital than it’s required
- Don’t wait too long to launch
This is a guest post by Michael Akinlaby. Michael is a Content Strategist and Consultant.
[Header Image: Shutterstock.com]"5 Deadly Mistakes That Could Kill A Startup Even Before Launch",