Entrepreneurial journeys are as diverse and unique as the diversity and uniqueness of entrepreneurs. However, there are some commonalities to be found in the entrepreneurship journey. After all, the aim of every entrepreneur is to build a great company. However, it’s all too common for entrepreneurs to fail.
We look at 9 common mistakes entrepreneurs often make during their entrepreneurship journey which can lead to their company failing.
Since budgeting, financial planning and projections, and marketing including digital marketing are essential aspects of creating a successful B2C or B2B startup, entrepreneurs need to be aware of these useful startup tools out there which they can use to get a leg-up on their competition.
It takes passion and determination to get into the startup/entrepreneurship journey. The outcomes are always uncertain. It’s passion that makes Alex Honnold decide to take the risky gambit of free solo climbing El Capitan. It’s 3,000 feet without ropes. (Source: National Geographic)
It’s passion that persuades men and women to take the extraordinary risks of climbing Mount Everest. (Source: The New York Times)
Timing and luck impacts entrepreneurial journeys in different ways. Mark Cuban built a successful business by being one of the earliest proponents of technologies such as Carbon Copy, Lotus Notes, and CompuServe. (Source: Wikipedia)
Cuban was one of the earliest to see the opportunities in streaming — his particular interest in streaming NBA games. He built broadcast.com and sold it to Yahoo for 5.7 billion USDs during the dot com boom of 1999.
Cuban received billions in Yahoo stock and then proceeded to hedge against the Yahoo stock declining. As the dot com bubble burst, Cuban made money. You got to be smart to figure out when there is a bubble happening in a sector.
Bill Gates started on his long journey of success only because IBM management decided to try out something new to shorten their product launch cycle from four years to less than that. IBM’s Boca Raton campus was put in charge of the new business of ‘personal computers’ — a segment that was unimportant to IBM’s core business at that time. Luckily for Bill Gates, IBM decided to outsource the software/operating system development part of the personal computer — IBM decided to try out many new things such as outsourcing of hardware development as well in the PC project — and sent out an RFP and Microsoft was chosen to be IBM’s software vendor.
But for every success story such as Mark Cuban or Bill Gates, there are hundreds of stories of failures. In fact, over 50 per cent of small businesses fail within their first five years. Clearly, it’s a tough task and a difficult journey to be an entrepreneur and set up a successful startup. How can you make sure your startup is built to last?
Perhaps entrepreneurs can be mindful of mistakes made by others and avoid the traps that lead to business failure.
Here are 9 major mistakes entrepreneurs should watch out for.
- Insufficient Market Research
Adequate market research is essential before you launch your startup. Lack of product-market fit has led many entrepreneurial ventures into their graves. Windows Mobile ultimately bit the dust as Android took off as the number one mobile operating system. As Bill Gates now says, it was one of the big failures of Microsoft as Microsoft was in the business of creating operating systems. Amazon’s Fire phone was another example of a spectacular failure.
While big corporations like Microsoft and Amazon can afford making many wrong bets, for a startup venture, making even a single wrong bet might turn out to be a fatal mistake. So tread carefully and only after conducting proper market research. If you are planning a SaaS startup, a list of the Top 100 partners of Amazon AWS and Microsoft Azure will tell you about what is already out there and will in turn help you decide whether your startup idea is on the right track.
- Insufficient Financial Planning
Passion can be an insufficient basis to run a successful startup. You need a product that has market demand. You need to have a plan to become cash-flow positive as soon as possible. Whether the initial funding for your company is from out of your own savings or through a VC or angel investor, you want to have a robust revenue stream going.
Bill Gates used to be worried early on in Microsoft’s journey about whether he had enough money to pay his employees. Gates made sure he had enough cash on hand to pay Microsoft’s employees for a year even if he lost all his clients.
This is the kind of financial planning that ensures that your company would succeed.
As Facebook grew phenomenally, it hired Sheryl Sandberg to build an advertising powerhouse using the FB platform. And thus FB monetized its strength as a social media leader and made billions.
Financial planning and monetization leads to profitability which makes for a great company.
Some early-stage companies can diversify too aggressively and bleed financially. Google took its profits from search advertising and diversified into many things including autonomous driving software, robotics, Google Glass, and so forth. Ruth Porat as CFO brought some control on all the diversification and ultimately Google became a separate entity under Alphabet through a major restructuring of the company.
Even tech behemoths like Google have benefited from financial planning.
Whether your startup is in the B2C ecommerce segment or a cloud business in the B2B segment, financial planning will ensure your company will be one of those companies that enjoys success in the long term.
- Insufficient adaptability/flexibility/persistence
There is this scene in the movie Jungle when the guy who is leading three others in the jungle half-kills a monkey with a gun and then proceeds to smash the head of the monkey with the butt of his gun. When in a jungle, you need to adapt.
Tom Hanks learned to adapt himself to his surroundings when he was stuck on that South Pacific island in the movie Cast Away.
In business too, it’s helpful to be adaptable and flexible. When you are a startup and a digital marketing campaign isn’t giving you the kind of returns you expect, you need to change track quickly — maybe find a new digital marketing agency.
When you receive customer feedback about your product or about aspects of your service, you need to take that on board. This requires flexibility and a willingness to listen to customers. Amazon has reached where it has by putting customers first.
Those who are not adaptable often disappear. BlockBuster stuck to DVD rentals while Netflix moved into streaming and the rest is history.
Amazon started providing cloud services and beat all the established enterprise and consumer software behemoths including Microsoft, SAP, Oracle, Google, and others.
Using bullets parsimoniously and managing without indoor plumbing are not the only skills you need in the jungle. One of the characters persists in trying to find his friend believing he must be somewhere in the jungle. At last, he finds his friend. The movie is a nice tale about the human capacity for persistence and more valuable in terms of the lesson it teaches because it’s a true story.
Startups definitely need to persist. There are many stories of such persistence. Tesla was often in danger of running out of operating cash during its early years before reaching the stratospheric heights that it has reached today.
The early SpaceX Falcon rockets often failed spectacularly before it ultimately managed a string of successful launches. Things came to the brink before SpaceX managed to snag a NASA contract to launch payloads to the ISS.
For businesses overall and startups in particular, things like flexibility, adaptability and persistence are must-have qualities.
- Insufficient marketing/digital marketing
You can find a list of successful Shopify stores selling cosmetics or lifestyle or personal care or other products online. There are many failed startups and entrepreneurs who also tried to sell the same sort of things but failed. That list of all those failed startups would be more difficult to locate.
Often, new companies will fail because the founder doesn’t recognize the importance of marketing. Whether it’s a niche ecommerce business idea or a SaaS or cloud startup, you need to engage in the appropriate kind of marketing to reach out to potential customers.
There are different digital marketing techniques for companies in the B2B and B2C space. You need to get up to speed on SEO and Content Marketing and the rest. Or, you can hire a full-time marketing manager or director if the task is large enough and if your budget permits it.
We are bombarded by a tsunami of information all the time. Hence, it’s only via marketing that you’ll be able to create an identity for your company. There are a variety of digital marketing techniques including email marketing and social media marketing that lets you reach your target audience.
If your company is in the consumer space, social media marketing is the only way you will be able to connect with your customers. Whether it’s Facebook, Instagram, or SnapChat, you have to meet your customers wherever they are.
- Wrong hiring decisions
A company is only as good as its employees. For early-stage companies with few employees, they are even more crucial to the success of the business. Instead of hiring your ‘buddies,’ you need to hire the smartest people out there. You need to hire for technical competence and complementary skillsets.
Initially, generalists will be more useful to you when your company size is all of five or 10 people. Once your company is bigger, you can hire specialists — programmers, developers, managers, marketing personnel, HR people, finance guys and even someone to make sure the office pantry is well-stocked and the coffee vending machine has coffee in it.
You also need to hire for diversity and have people with a range of views. You need to hire independent minded people who’ll give their honest opinions and tell you the brutal truths rather than sugarcoating things.
When hiring decisions go wrong, you have to be willing to make quick course corrections. Netflix has this nice policy of firing good employees after paying them nice severance packages. Netflix only likes to have great people on its payroll and pays them above the industry average.
What works for Netflix may not work for you but making correct hiring decisions are very much crucial to the success of a company. Think of Zuckerberg’s hiring of Sheryl Sandberg or Steve Jobs hiring Tim Cook.
Marissa Mayer was one of the earliest employees at Google. And then Page and Brin hired Eric Schmidt when they needed someone with broad business leadership and management skills.
- Partnering with wrong investors
Investors aren’t just money bags. Far from it. They can be mentors and guides whether they sit on the board of your company or not.
It’s important to find the right kind of investors. It’s true that there is a lot of venture capital investment available if you are planning a certain kind of startup.
You can benefit by performing a due diligence of VCs and angel investors just as much as the investor benefits by doing a due diligence of the company before investing.
Among the investment options available to early stage companies and startups, VCs are the best option. Luckily, there are lots of VCs with different focus area.
Atlanta Ventures, Sequoia Capital, Andreessen Horiwitz, Point Nine Capital, Battery Ventures, Eight Roads Ventures, and 500 Startups are just a few of the VCs you can approach for funding. The funding available from these firms ranges from a quarter of a million dollars to a billion dollars. (Source: Gripped)
- Trying to do everything yourself
It can be wrong for a fresh entrepreneur to believe that he or she can ‘do it all.’ Your expertise can range across a couple of fields at most. But a successful business needs to be able to fire on all cylinders including technology, marketing and finance. So, you should consider having a co-founder.
It’s not a random thing that people like Bill Gates and Steve Jobs had partners. Hewlett and Packard started their company jointly.
You need a learning mindset as an entrepreneur. You can gather knowledge from a variety of sources including by reaching out to your professional community of peers.
- Trying to grow too fast
Trying to grow fast can lead to failure as it takes time to build up a brand and create products that consumers love. It takes time for any company to acquire a set up satisfied customers. Microsoft in its early days didn’t grow too fast nor did Amazon. They built up a reputation in their niche and only then spread out to other areas and businesses. Whether your startup is in B2B or B2C, it’s better to be slow and steady.
When your business is in healthcare or other domains with a regulatory element to it, it’s even more logical to adopt a deliberate approach.
Electric aviation startups have been doing their research into electric aircrafts since more than a decade and it’s said flying cars and autonomous flying taxis are still a long way in the future. (Source: The New York Times)
So, whether you are into ML/AI/cloud or ecommerce, it’s important to remember that patience pays.
- Lack of a clear vision/corporate strategy/leadership
Even world leading companies fail occasionally. Intel failed to make a dent into Qualcomm’s vice-like grip on the top-end of the smartphone SoC market. Intel however continues to dominate in the processor market for PCs and laptops.
Large companies like Amazon and Microsoft can afford to fail but for startups, it’s essential to have a corporate strategy apart from business strategy so that everything is aligned and the company doesn’t run out of funding or doesn’t run into other troubles.
Michael Porter shines a light on all these aspects by differentiating between business strategy and corporate strategy. (Source: YouTube)
Building a startup is going to change you. It’s going to affect who you are. When you do something big, it naturally affects you. Like Simone Giertz said, you cannot go through brain tumor removal surgery and not have that experience affect you.
But life is about experiences. Sometimes, you get to fly in a Zero-G aircraft if you are lucky enough, crazy enough, or ambitious enough.(Source: YouTube)
Launching a startup is like running a marathon. You need to find ways to relax, have fun and keep healthy. So, get your bases covered from a legal perspective — register your business and file for copyrights and patents — and enjoy the ride.
It’s better to be tight-fisted with money. It turns out that the capital requirements will overshoot projections. So, don’t waste money and don’t pay yourself the wrong salary amount. Price products right — neither too cheap nor too expensive. Launch products at the right time — neither too quickly nor with too much delay.
Reading gives new perspectives. You can read the perspective of Harvard Business School professor, Tom Eisenmann, who writes about why startups fail and illustrates with case studies. (Source: Harvard Business Review)
If you want to build a company that is built to last and has second and third acts, you need to proceed accordingly. The Walt Disney Company, Microsoft, and other companies have shown these qualities such as endurance, a ‘value framework oriented toward societal impact,’ and ‘a scalable system of leadership.’ (Source: Harvard Business Review)