Startup founders are among the most courageous people in the business world. They walk on paths never previously explored and aim at providing a solution that is yet not validated by the market. The risks of a startup to fail are higher than those of the average company, and as such, they require a differentiated approach to both planning and executing the business. As a consequence, the possibility of making deadly startup mistakes is higher, and startup owners should pay considerable attention to avoid them. Otherwise, their startup will fail.
When curating this list of the four major startup mistakes, we considered both gravity (how serious the mistake is) and range (how it can lead to other problems). The list includes errors that are both serious in themselves and that leads to other complications. By making sure you avoid these mistakes, you will also avoid other issues such as financial problems and operations inefficiencies.
Startup Mistake #1 – Not Properly Planning Your Startup
Not every new business is a startup, but every startup is a new business. In fact, startups are a special class of business: they explore problems where the solutions are not obvious, nor the success is guaranteed. The consequence? Startups have to deal with a much higher degree of uncertainty, and they must be ready to adapt their strategy to the market shifts.
The natural conclusion that many startup founders draw is that planning is not necessary. After all, why should they waste time and resources creating a 30-page business plan that will become obsolete in just a few weeks or months? Obviously to invest as much time as possible into actually growing a business seems to reduce the risk of failure for a startup.
The problem with this perspective is not the lack of a business plan: it is the business planner. The person or team drawing the business plan does not understand they must take a modern approach. Business planning for startups is not about drawing a hard, unchangeable business; it is about creating a flexible framework that makes your company adaptable to the circumstances.
An effective startup business plan does not cover 30 pages of irrelevant text. Investing too much time into planning is actually as deadly to a startup as skipping strategizing completely. A proper startup business plan covers a deep understanding of the target market and some vision of the desired business. Formats like the business model canvas are great to express your startup business plan. Correctly planning your startup makes it twice as likely to succeed, and you should never forego this fundamental step.
The 3 Reasons Why Business Planning Is Relevant for Startups
75% of all startups fail, and the two main reasons are: they did not create a business plan, or they did it incorrectly. There are three main reasons why you need a business plan for your startup.
Reason One: To Organize Your Startup
No startup plans to stay a small, irrelevant business. Everyone wants to grow and to succeed, and planning helps you consider every aspect of running a business. By properly surveying your customers, your market, your competitors, and your industry, you will come across many insights that are much harder to obtain without the respective data. In addition to that, planning helps you identify holes in your strategy, financial estimations, marketing plans, and other dimensions that are crucial to your success.
Reason Two: To Finance Your Startup
Startups are sometimes associated with burning money. Many investors are afraid of trusting their money to volatile businesses exactly because the chance of success is smaller than in normal scenarios. This makes the business plan even more important, as you have the chance to demonstrate how your startup will generate profit even when the circumstances are not so favorable. A business plan is essential for convincing investors that you are committed to doing your best in the business and fighting as much as possible for success.
Reason Three: To Guide Your Startup
Startups walk into unknown territories. Often, they are the first to explore a product, a need, or a market, and there is no established guide to help them in case of adversities. This is where proper planning comes into place: how will the business deal with uncertain and risky events? What are the possible scenarios and changes that might come to your market or industry? How will your business react?
The lean startup philosophy of continuous iteration and improvement is an interesting path to follow. It says that new and innovative businesses should explore and learn from practice. This doesn’t mean, however, that it precludes planning. In fact, exactly the opposite is true: you must plan while keeping such principles in mind to be fully successful.
Startup Mistake #2 – Not Understanding the Real Needs of Your Target Market
Many startups aim at yet unexplored customer demands. While each and every business should target an existing market need, startups are unique in the sense that they are the first to tackle a specific demand and, therefore, do not have any standards about what the customers are actually looking for.
In fact, a very common mistake entrepreneurs usually fall prey to is generalizing their personal feelings towards the product as a widespread phenomenon in their target markets. Because they are in love with their own creation, startup owners believe other people should also see the product as they do. This fallacy is one of the main reasons why so many products fail when entering new markets.
How to Identify and Approach Target Markets Effectively
The first step in understanding your target market is doing a high-level research of the general characteristics of the population. Where are they located? What is their average income? Are they companies or are they individuals? These questions help you get an overview of what your market looks like, and it is the first step towards a better understanding of the personal characteristics of your audience.
The next step is to conduct a thorough market research and build detailed personas for your startup. Personas are detailed profiles of your customers and include granular information such as demographics, their psychological characteristics, the problems and the fears they face, among other quantitative and qualitative factors.
By bringing together these two levels, you are maximizing your chances of building a very successful startup and being accepted by your target market when launching your new product.
Startup Mistake #3 – Growing to Death
Isn’t expansion good? Shouldn’t everyone aim at scaling their startups as fast as possible to get a bigger market share?
Yes, expansion is good, and yes, startups should aim at growing. But before that, they should aim at getting things right. The very definition of a startup carries various elements related to uncertainty, so it is very likely that your business will require many adjustments and shifts once it is established in the real world. Expanding the wrong business model is the perfect recipe for a very expensive disaster.
How to Decide When It’s Time to Expand
Expanding your business requires a certain amount of faith in your capacity, but you should not scale your startup simply based on your gut feeling. There are several indicators you should look at that show whether your business is growing naturally or if you are pushing your product or service to the market through considerably high marketing spending. One very important question you must yourself is whether the demand for your product or service is a result of extremely high marketing spending, or whether people are coming organically to your business. While marketing is important for startups if you have to keep increasing marketing spending to get more customers, this shows a certain disengagement between you and your client.
In this article, ReadWire offers the testimony of several CEOs and their respective expansion triggers: they vary from calculating financial ratios to capacity constraints and maintaining the first mover advantage. Sales growth is also mentioned, but you should be careful to analyze in detail where these sales are coming from and whether you are growing organically or not.
Startup Mistake #4 – Not Knowing How to Deal with Failure
If you haven’t failed, you’re not trying hard enough.
In his TED Talk, Astro Teller, the head of X, explains how he fosters innovation by not only accepting failure but also rewarding it. X is a division of Google where highly innovative and risky concepts are developed. Their projects are way riskier than any startup you might think of, and they are constantly looking for radical solutions to worldwide problems.
But their high failure rate does not necessarily mean they are not successful. Instead, it means they innovate a lot and much faster than other businesses. As the quote from Jennifer Crusie suggests, failing is part of the learning process, and your startup should stop trying to completely avoid it.
How to Learn from Your Mistakes
X is structured in these tight feedback loops of making mistakes, and learning, and [creating] new designs.
Running into an obstacle is not a reason to drop your project or change the direction of your startup. Obstacles are part of the process, and they happen because it is simply impossible to predict every single possible scenario when planning your startup.
There are many ways of learning from mistakes, and the Lean Philosophy is one that has proved itself considerably useful for startups. This Japanese theory was born in Toyota after the second world war, but its highly effective principles soon transformed it into a worldwide phenomenon. The learning cycle is based on three general phases: (1) Identify mistakes and inefficiencies, (2) Eliminate these mistakes, and (3) Standardize the new solution to sustain the gains. The process of continuous improvement, so important in the early stages of a startup, is nothing more than the repetition of this cycle.
Managing and growing a startup is not an easy task. It requires a lot of energy, nerves, and passion. But this higher risk also leads to higher and more profound rewards. By avoiding the four major mistakes we discussed here and by focusing on consciously expanding your startup and continuously improving your operations, you are sure to be on the right track to success!