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According to the data provided by the U.S. Bureau of Labor Statistics, more than 20% of new companies cease to exist during the first two years of operation, and almost half of all businesses don’t go past their fifth year. Why does that happen? Read along to find out.

We make mistakes, especially when we lack experience in a certain process. Startups are no different in that regard. First-time founders often commit serious errors in their company management efforts blinded by their focus on the product/service itself. Too many times they bury themselves in irrelevant for their stage activities and that often untimely leads to the death of the company. In this post, we will try to give an overview of the most common mistakes that startup founders make. Let’s get started.

  1. Lack of vision and purpose – This is the most obvious, but still seriously overlooked mistake that is being made constantly. The biggest problem is that it is not a one-time error, but rather a cumulative one. If the company cannot clearly formulate its vision, then it would not be able to convince its stakeholders that it will succeed and the organization won’t be able to focus its efforts. Without focus, resources are going to be wasted and the startup may run out of cash before its next funding round.

    Here are some examples of well formulated vision statements:
    Facebook –  Helps you connect and share with the people in your life.
    Google – Our mission is to organize the world’s information and make it universally accessible and useful.
    Netflix – Becoming the best global entertainment distribution service.
    Microsoft – A computer on every desk and in every home.
  2. Not having a clear focus – This directly stems from the point above and as we explained it is the main result from the lack of well-defined vision statement and purpose. The ambition of many startup founders often leads them to the pursuit of many goals at the same time and that ruins them in the end.

    Having a clear focus allows companies to communicate their offer in a much easier to be understood manner. Focusing your efforts on just one thing and doing it well is a good strategy in the early days of the endeavor because it ensures a more efficient way to spend your scarce amounts of cash. Unfortunately, it sounds easier than it really is. Founders could get an immense amount of pressure from customers, team members and investors trying to squeeze bigger returns from the company. Learning to sometimes give negative answers and following the path towards one, but sufficiently good product/service is one of the skills that entrepreneurs should master.
  3. Understanding the market – Too many companies out there rely on naked assumptions and spend a great amount of their resources on false ones. Burning through your funds and creating something that people do not really want is an extremely common occurrence in the startup world. We know that it is hard to do marketing research on a market that perhaps does not even exist. What is the solution then? How can we understand if what we are building is really needed? Well, there is a way to do that and it is by testing your assumptions though a minimum viable product. Build something that is tangible and see whether people would like to interact with it. If they show interest and that interest grows with time, then you have a green light to fully develop the whole product.
  4. Getting the wrong investors onboard – Some founders lack the understanding that investors are not only a bunch of bank accounts. They are PART of the new venture and most of the time will have a say in its management. In essence, the company’s first set of investors will either solidify its development or will ruin it. In the startup world, an investor with the right connections and experience in the specific sector is called to have “smart money”. This means that he provides not only the financial backing, but the upper mentioned bonuses – a wide network and the necessary knowledge.
  5. Not formalizing relationships – Avoiding solidifying agreements with a contract is another huge mistake often made by entrepreneurs (mostly first time ones). Even when the relationship is good, it can be ruined without clear terms written down from the very beginning.
  6. Hiring a large team too soon – Even though a great team is a necessity when running a startup, there is no need to make it too big in the early stages. Not at least until you have proven that you have a scalable business model. You have to evaluate whether you need a person to be full time with the company or not. Subcontractors and part timers could do an excellent job for some early projects.
  7. Not the right team – Small, but highly efficient and productive team is the engine of every high growth company. Unfortunately, many of them fail to become such an engine and too often young companies get riddled with conflicts and communication problems during their first years. Even more – some of the team members might not have the necessary skills to push the company through the hardships.
  8. Building overly complex product/service – This is related to the first point in our list. Often ambitious founders (especially those with a technical background in the specific industry in which the startup operates) riddle their early version of the product/service with many unneeded features and thus confuse their potential customers. Our advice – keep it simple before you know that it is something that the market really needs.
  9. Blindly following your own idea –  Sometimes, founders should stick to their initial plan/concept, but in most cases they shouldn’t. Why? Mark Zuckerberg said it perfectly:

    “Movies and pop culture get this all wrong: The idea of a single eureka moment is a dangerous lie… Ideas don’t come out fully formed. They only become clear as you work on them. You just have to get started.”

    Or in other words – adapt and iterate. It is not likely that you will build the exact concept that you once imagined. You may meet people who will add their own creativity and experience to the original idea and that might make it even better and much more impressive than it was once thought. An idea is like a living organism – it evolves and develops through experience.
  10. Neglecting competition – This might be obvious, but you will be amazed how many companies concentrate on internal development without taking a look at the other entities operating on the same market. Running a business is like a game of chess and you should always be on the lookout for any dangerous move that your competitors might make.
  11. Not sharing the idea – Many people think that ideas are the most valuable thing in a startup, but that is not true. Execution is what matters the most, which means that if you are solving a very common problem, chances are that you will have other people trying to do the same. Some examples could be given with Facebook and Google. Facebook was not the first social media channel and Google was not the first search engine, but what made them successful was the quality of their service.

    By keeping your idea hidden, you will miss out on valuable feedback and advice. Think of it as the first marketing research that you will ever conduct. It is not a rare occasion to even have an opportunity to secure a strategic partnership with a peer that can help you skyrocket your endeavour. However, keep in mind not to share every little detail about it.

Most of those mistakes seem very obvious when looked aside. Unfortunately, it is not like that when it is your skin on the stake. Being a startup founder requires a lot of guts and it is often accompanied by a huge burden on the shoulders. During your day-to-day activities, you will be awash with a cocktail of emotions that can sometimes prevent you from making the most rational choice when it comes to running your startup. It is almost the same case as with parenting. Parents make errors that may look very shallow and easily preventable when you are looking at it from an emotionally uninvolved perspective. That is understandable and it is a totally human thing to do so it is a good idea to keep a list of such common startup mistakes somewhere where you can see them. You will save yourself a lot of headaches this way.


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