Introduction
The hard reality of building a new company from the ground up is that 90% of startups fail. Even if you have a unique idea that could disrupt your industry, there are many startup mistakes that can keep your business from reaching its full potential.
Some missteps are expected, and startup founders shouldn’t be afraid to fail now and then. But big mistakes, like burning through cash too quickly or not listening to your customers’ needs, can be the difference between whether your company joins the majority of startups that fail or the few that don’t just survive, but thrive.
To better equip yourself for the future, check out these 10 startup mistakes to avoid to keep your business on the path to success.
10 Common Startup Mistakes
Starting a new business comes with a learning curve, and you’re guaranteed to make the wrong move from time to time. But some startup mistakes have been played out time and time again, and you can learn from these and avoid them in your own company. By knowing which top startup mistakes to avoid, you can instead focus on your startup growth journey.
Here are some of the most common mistakes that startups make today:
1. Burning Through Money Too Quickly
One of the biggest startup mistakes is poor cash flow management. About 82% of unsuccessful startups fail because they fail to properly manage their cash flow, or how much money is coming in and out of the business. Without keeping tabs on money, it’s easy for startups to burn through money too quickly—through renting flashy office spaces, hiring too many employees too soon, or not keeping track of inventory—leading to product losses or excess ordering.
To minimize this risk, it’s important to plan a budget that accounts for what you expect to bring in and how much money you’ll be spending. This can be a big task, so working with a Certified Public Accountant (CPA) can help. You’ll need to keep stock of inventory, so you aren’t left with too much product that won’t sell.
It’s also wise to keep some cash reserves, or savings, set aside to help keep the business afloat if the initial buzz around your startup wears out and leaves you with slower months. Plan ahead for potential challenges. For instance, if you’re selling a new type of drink cooler to keep beverages chilled, you may want to prepare for slower sales in the winter.
2. Lacking the Right Team
About 23% of startups that fail are linked to team issues. This might be because of a lack of experience in founders or new hires, or it could be because co-founders or early employees don’t have the same vision or goals for the company.
You can expect some friction among passionate team members trying to meet the startup’s goals, but if employees aren’t communicating clearly or respectfully, it can lead to bigger problems for the startup.
Not only that, but new companies need to build inclusive, honest, and trustworthy startup company cultures that make employees want to stay. That doesn’t have to look like game rooms and free pizza; instead, paying employees on time, providing timely feedback, listening and addressing concerns, DEI (diversity, equity, and inclusion) issues, and supporting the team by providing the tools they need can all help create trust and respect for startups.
3. Pricing Products Improperly
No matter how amazing your product is, pricing it too high or even too low can hurt your startup. When you price a product too high, potential customers may not buy it in the first place. For those that do, they may feel the product quality doesn’t quite match the price they paid, which can keep them from making another purchase. Fortunately, if you realize quickly that the price is too high, it’s easy to adjust and price your product lower moving forward, after doing some more market research.
But if you price the product too low, this can mean your revenue suffers. You might be spending more to produce a high-quality product than you’re bringing in. Or your audience may not trust that the product is as described, instead feeling that it could be a scam or “too good to be true.” Either way, if you try to raise the price later, it can also ruffle the feathers of customers who bought in early at the lower rate, or your target audience may already be wary that the product isn’t great because of the initially low prices.
According to McKinsey, overcharging is often not the issue for improper pricing. The management consulting firm found that up to 90% of improper pricing issues are actually products priced too low.
4. Skipping Contracts
You and your co-founders may trust each other enough to make verbal agreements, or you may have great vendor relationships that make you feel comfortable working on agreements settled in emails. But don’t stop there. Every deal you’re making should be protected with a contract.
Contracts are going to protect all parties in a deal, and you’ll need them when choosing co-founders, securing investors, working with freelancers, and any other time you’re making a business agreement or deal. Without these legal agreements, all parties are at risk, especially if trust or communication breaks down later in the relationship.
5. Failing to Create a Business Plan
As the old saying goes, failing to plan is planning to fail. Securing enough funding is one of many startup mistakes, and it can often be attributed to a lack of a thorough business plan.
Only about 33% of startups that go through series funding end up getting to or past Series A, the stage after pre-seed and seed funding. Why do so many startups struggle to move forward in these funding rounds? It can often be because even when the idea is unique or fulfills a specific need, the founders haven’t presented a long-term, sustainable business plan.
Investors look for a business plan to make sure you have steps in place if challenges come up, and this plan will show that your product or service won’t just be a temporary trend.
Aside from giving investors some peace of mind, having a business plan can also help you face hurdles head-on. Whether it’s new competitors on the market, fluctuating demand, or explosive growth, a business plan will help you through potential challenges.
6. Not Researching the Market
You may have a great idea, but if you try to enter it into the wrong industry or market, it may flop. You need to research your niche thoroughly, making sure your brand will stand out from competitors and your product or service is something that people will actually want to buy to make their lives easier or better.
Investing the time to research can help you avoid so many potential startup mistakes, such as pricing the product too low or high or marketing to the wrong audience.
7. Not Delegating the Work
When it comes to starting a business, it’s easy for founders to feel like they need to handle everything, especially when cash is tight. But when founders and managers aren’t delegating, they can get burnout from overworking. The business also suffers from a lack of diverse ideas and experiences when fewer people are overseeing everything.
By delegating tasks to employees with the right skills to handle specific business needs, the entire company can operate more efficiently and productively.
When delegating, communication is key. Be clear and upfront about expectations, and provide constructive feedback. Make sure those taking on the work aren’t taking on too much, and also give them the tools and information they need so they don’t feel micromanaged.
8. Rushing to Hire New Employees
While delegation is important, startup founders also need to be mindful of the hiring process. Hiring too many new employees too quickly is a startup mistake to avoid, as it can contribute to a higher burn rate, or how fast a company is losing money.
Maybe you need help with administrative tasks. Instead of hiring a full-time, in-office employee, could a virtual assistant (VA) working on a freelance contract or part-time work to help take some of the load off of your plate?
Or, perhaps you need to focus on your social media marketing efforts. Compare the costs of hiring a third-party, like an agency, to handle that for you and the cost to hire an employee or a team to work in-house.
When you do need to hire employees, don’t just opt for the first few resumes that land in your inbox. Although it can feel like you need someone to come in and help immediately, your early employees should also be a good fit for the startup’s mission and culture.
Make sure to vet potential hires thoroughly, or you may end up with higher turnover rates that require more money to keep hiring and training replacement hires. With the average cost to hire someone new at around $4,000, you’ll be spending a lot more if you hire people who aren’t the right fit because you were in a rush.
9. Underestimating Financial Needs
Underestimating the current and future financial needs of the business goes hand in hand with lacking a business plan. Maybe you underestimated how much capital you needed to develop, manufacture, and ship your products, or you didn’t account for the costs of software subscriptions that you’ll need to operate.
About 53% of companies underestimate the amount of money they need to meet costs in their first year of doing business. About 46% of businesses are surprised by what they need to pay in taxes, another reason why working with a CPA can be helpful to prepare you for these costs. Technology and shipping are also top costs that take businesses by surprise as they are getting started.
10. Not Listening to Customers
Especially if you’ve built out a solid, long-term business plan, you can put a lot of time, money, and research into your target audience and how your product can meet their needs.
But don’t let this work keep you from staying in tune with what your customers are actually saying. The data is important, but be sure to review feedback from your audience, too. Because even if the product is great, your brand’s way of interacting with potential clients and the customer experience can determine whether people want to support your brand or not.
About 60% of companies that put clients first are more profitable compared to competitors, which just goes to show that listening to customers can actually help the business financially.
Avoid These Startup Mistakes to Grow Into a Successful Business
Every startup is going to hit some roadblocks and make some mistakes along the way. But some mistakes can be detrimental, even leading to failure, if you’re not careful. By studying up on some of the most common startup mistakes, you can learn from your predecessors and sidestep these issues, instead building a brand that can experiment and disrupt its industry without fear of failure.
