By this point in my life I’ve had a lot of experience with startups. I’ve started several companies which had successes and failures, and I’ve been part of startups created by others. I’ve even done a fair amount of consulting to other people’s companies. Consistently I’ve noticed 10 things that will doom a startup to failure, and I’d like to share this list with others in the hopes these common mistakes can be avoided.
#1: Mismanage your Resources
With a company you have many resources at your disposal and this includes your talented employees (who are perhaps your most valuable resource). But this can also apply to other assets you have, ranging from equipment to your office space.
For example, if you temporarily rent out some of your overflow office space to a third party for a few thousand bucks, but another department could have used that space to meet with customers and these sales meetings could have brought in tens of thousands of dollars per transaction. If you do something like that you’ve mismanaged your resources. You shot yourself in the foot by short-changing the long-term success of your own startup for a short-term return.
I see this happen a lot with businesses. It’s usually due to the top decision makers not making plans based on genuine market research (i.e. surveys from potential clients that your startup created — news articles based on press releases created by your competitors is *NOT* market research!), and instead making a business call based on their “gut instincts”.
I am reminded of the indie game MMO startup I did some consulting for, whose lead GM impulsively decided to invest months into building a new town area for roleplayers that would be isolated from the rest of the player population. This decision was in spite of the fact our customer surveys indicated the majority of players wanted new raid dungeons. When the new town area was finally added the game had lost several hundred paid subscribers who moved on to other MMOs which provided the content they wanted. As for the new town area, it was a ghost town because it was a feature nobody wanted.
This MMO developer wasted several resources (time, money, and employees) that if better spent on something else would have had a better ROI. The loss would not have occurred if decisions were made based on the market research they already did but was ignored just because the lead GM had a pet project they wanted to do even though the research didn’t support the decision.
There are many stories of money being misspent in a startup, but I believe that “Time” is the resource that is most often mis-spent. What are you and your employees spending their time doing and how is this a better use of their time than another activity? Do you even know the typical work day for each of your employees? These are important questions to have answers to. If you don’t have the answers readily available then you are likely making this mistake.
#2: Focus on Valuation over Traction
I’ve seen a company decide to not do any media outreach for months because they wanted the first article written to be about their first seed round and the insanely high valuation they hoped for. Worse, the same company spent its entire marketing budget on a launch party that was largely intended to impress potential investors who had been invited. Marketing materials were indeed created for distribution during the party but upper management decided the barely paid bartenders should distribute them. Suffice it to say the marketing materials were not dispersed properly.
Worse, the investors never bit. Due to the lack of emphasis placed on marketing the company gained little traction and subsequently never got that seed round.
Traction is the most important thing for your business to have in order to get investors excited, and traction can only come from customers. Always prioritize customer acquisition over investor acquisition.
#3: Have No Practical Knowledge About the Industry You Seek To Disrupt
Just because you read some news articles doesn’t mean you truly understand the industry. You need practical knowledge, and that comes from your own experiences succeeding or failing in that industry. Granted, if you lack practical knowledge you can temper it by researching that industry with books and mentorship, but nothing trumps actual experience with the idiosyncrasies of the industry you are trying to tear down and re-imagine.
Also make sure the experience you have is relevant; the things you know have to be with the times. If you worked in the car manufacturing industry twenty years ago and haven’t kept up with the latest manufacturing technologies you need to brush up. Industries are constantly getting disrupted and much of what you thought was sacred in the past likely isn’t anymore.
I’ve personally made this mistake when I first started out as an entrepreneur. I hired people to do programming, marketing and business development when I had no idea about programming, marketing or business development. These bad hires did force me to learn about these areas but it was a painful lesson each time.
Don’t make this mistake. Don’t be in such a rush to throw your hat into the ring that you start down a doomed path. Become an expert in the industry you want to build a new business in or you’ll fail every time.
#4: Blaming Other People For Your Own Failures
I’ve seen executives blame department managers for failing to meet quarterly goals, but these failures were actually the result of decisions the executives made impulsively and without consulting the manager about the plan when the executive committed the manager’s department to it. This is a sure-fire way to lose your managers. No one wants to be forced into going down a path that will lead to failure and then be blamed for the inevitable result.
If you make a decision then you are responsible for any failures resulting from that decision. Don’t blame your employees for attempting to execute on a poorly made plan you committed them to.
#5: Starting a Company When You Don’t Know How to Run One
There is a difference between being an investor and being an executive. I wish more people would accept this.
Likewise creating a startup is very different than running an established company. With a startup you have to build everything from scratch, not just the product but also the branding (the messaging behind your product), the organizational structure (how different departments work with each other), the work-flow (the process and tools your employees use to do their jobs). You even have to build the pipe for ensuring your employees get paid on time.
To be a CEO of a startup you need to be competent at every single aspect of creating a new business. Be honest with yourself; if you don’t know how to do every job your employees do then you will not be an effective CEO of a startup. You won’t even know if your employees are doing a good job or not; don’t kid yourself into thinking you can just look at the cash-flow to know their performance. If you don’t understand what the employees are supposed to specifically *do* to be good at their jobs then you cannot create meaningful protocol for them to follow, nor can you even accurately assess whether a potential hire has the necessary skills to do the work you expect of them.
Take the time for an honest, accurate assessment of yourself. Do *YOU* even know how to use the products your company sells? This may seem like a silly question to ask but I am continually surprised by how many startup executives don’t, and instead believe simply knowing the idea behind their product is sufficient (hint: it’s not).
This is an important mistake to avoid. If you make this mistake you’re just pissing into the wind.
#6: Allow Your Emotions to Dominate You
The first few months of running a startup can be really exciting, but when the business doesn’t astronomically rise as your imagination led you to believe it would, it can become tempting to make an impulsive pivot. This is often a decision stemming from the fear of failure, but occasionally it can be due to your greed tricking you into thinking another path will be easier and more profitable. On a couple occasions I’ve seen people make decisions based purely out of pride, such as not wanting to “lose” to a competitor.
Don’t make decisions based on emotions, but rather on the science of business. Follow the lean process: develop a feedback loop and trust that this scientific method of building a business will guide you to success.
If you make impulsive decisions to pivot that are removed from the feedback loop you will almost certainly fail because that pivot was an emotional decision, not a rational one.
#7: Do A Bunch of Things That Have Nothing To Do With Each Other, At the Same Time
It is so hard to build a business that it is idiotic to try to do more than one thing with your company when you have a brand that is completely unknown. A lot of people assume really successful startups like Netflix and Facebook do dozens of different things but this is actually false. They do one core thing.
Facebook is a micro-blogging platform that allows people to share content to their tribe. Every feature on Facebook supports this core function of the platform.
Netflix is a platform for discovering films and TV shows. Netflix developed a proprietary index of movies and TV shows that assigns tags from a controlled vocabulary list to each piece of content. It then observes user behavior to determine what type of stories the viewer likes and then recommends other programming with those same tags.
(Remember, Netflix was originally a DVD mail order rental business not a streaming video service. Netflix’s core product is not streaming movies, but rather is in recommending content the viewer will like. The reason people pay for the service is because it saves them time from having to search for new movies or shows to watch)
Successful startups do one core thing in a way that is superior to their competitors. They might have different features of their platform that support that core thing, but there is only one core thing.
If you can’t define what that one core thing is for your startup and focus purely on being the best at it, you don’t have a chance of success. You will fail.
#8: Tolerate Ineptitude
Don’t keep employees who aren’t “A Players”. Get rid of them immediately. I can’t stress this enough.
There is nothing more destructive to your business than employing people who are just there to run out the clock on their shift and are not passionate about their work. Not only is their paycheck better given to a more competent new hire but these losers will actually drag your company morale down by infecting your culture. You’ll end up with unnecessary drama and a culture of people more interested in playing office politics than building a business.
You will lose your A Players if you tolerate ineptitude. A Players can go work for someone else; they don’t have to work for you. By comparison B and C players will stick around because they are terrified of having to go find another job because they know they suck. That’s the core reason why they play office politics and create drama; they are so terrified of having to go find another job that this fear drives their decision making. They are concerned only with their own personal well-being and not with whether the business is doing well or not.
A Players care about your business succeeding because they get their validation from doing great work. Because great work cannot be done by losers the A Players will abandon ship for a venture that has a better crew.
#9: Treat Your Startup Like a Day Job
Startups requires 100% commitment. As the boss you don’t have a 40 hour work week. Every waking moment of your day should be devoted to growing your business. Building a business is just so hard that unless you are willing to focus solely on it you aren’t going to get the kind of traction you want.
Many people fool themselves into thinking they can leverage relationships from their past to quickly build client lists, but that isn’t usually how it works. Clients expect a better service than they are currently getting in order to end their current relationship with a service provider and try a different one. Thus your product must not only exist but it must also be superior in some fashion to what is already available to the potential client. This takes a lot of time to achieve.
The lifestyle of an entrepreneur often doesn’t afford you much for your personal life. Your personal relationships will suffer because you will not be able to invest the necessary time into them. This may be a deal killer for many people, and that is fine.
Can’t make sacrifices in your personal lifestyle to build a company? Good, we’ve just determined that startups are not for you and you’ve just saved yourself from a very painful experience with no reward at the end of the road.
It’s better that you know upfront that building a startup is not for you, rather than ruin your personal relationships AND lose all your money in a new venture that will ultimately fail because you didn’t invest the necessary time into it.
#10: Say ‘Yes’ To Everything
A lot of people will want your time. Even more people will sell themselves as being the answer to all your problems. As an entrepreneur you need to learn to say ‘No’ to opportunities that will distract you from your business’ core focus.
Sadly, because a lot of startups ignore rule #7 they never identified a core focus and thus have no way to measure what opportunities to say ‘Yes’ to and which to say ‘No’ to. This causes an easily recognizable pattern where most of your work day is stuck in meetings that create no plans of action and creates a revolving door policy that brings colorful characters into these meetings who distract your employees from doing the work that will make your company successful.
A B2B deal can take anywhere from weeks to months to secure and involves dozens of meetings. You need to be picky with which deals you prioritize because if you try to pursue them all you will find you can’t secure any of them because you didn’t devote enough time into the relationships.
Identify a core focus for your company, and stick to it. Don’t pivot based on a whim and don’t agree to meet every person who knocks on your door. If you ignore this advice you will waste months of time going down rabbit holes that lead to no where — which not only burns out your employees but wastes your time and money, too.
I hope this article has been useful to those who are thinking of starting a venture. If you have any questions or something you’d like to share, feel free to comment below. If you are interested in hiring me as a consultant, click here.