Despite good ideas and best intentions many new businesses struggle to survive past their first few years. Even financial backing doesn’t guarantee success. In a 2012 report, Harvard Business School found that 30 to 40 percent of new ventures with $1 million or more in investor funding ended up liquidating assets and losing their investments.
The good news is that you can benefit from other entrepreneurs’ hard- learned lessons. Many startups make the same mistakes, so learning about them can help you beat the odds.
Learn about the five common startup mistakes and how you can avoid them to build a thriving business.
1. Missing the product mark. It seems like a no-brainer: If there’s no market for your product, you won’t be in business long. Yet in a 2014 study by data company CB Insights, 42 percent of failed startups blamed their demise on lack of demand, making it the biggest killer of fledgling companies.
The fix: Abide by the entrepreneurship 101 rule: Deliver a product or service that solves a problem or fills a void in the market. Don’t just trust your gut. Tap professional associations and trade publications to better understand the market and seek customer feedback through online questionnaires or in-person interviews. Industry associations and local chambers of commerce can likely refer you to experienced business owners in your chosen industry for insight. Also consider trends, because demand today doesn’t guarantee customers in two years.
2. Lack of focus. Even with a good sense of market potential, you can stumble on the execution of your startup if your focus is too broad. Trying to be all things to all people makes it difficult for the market to understand what you offer.
The fix: Zero in on your target customer. Apply discipline to your company mission by clearly defining your product and what specific target market you will serve. Then, identify areas you will consciously stay away from — if need be, you can broaden your product offerings later on.
Consider the success story of Todd Greene, the founder of HeadBlade, who designed an ergonomic razor for balding men like him. He resisted tempting offers to also serve the face- and leg-shaving markets. By keeping the focus on heads, his eight-person company has sold more than a million high-priced razors. Follow his lead and take the time to articulate your business’s unique raison d’être. Develop a 30-second statement about what you do, communicate that message to your entire team, and stick to it.
3. Stalling the launch. While proper research and narrowing your offering are crucial to success, many startups get stuck in that phase for far too long. A better approach is to go to market with a solid offering and let customers and prospects help you further develop it.
The fix: Savvy entrepreneurs know when they have enough information to go ahead, and they trust that customer feedback will inform necessary improvements. If you’re worried that a premature launch will tarnish your brand, consider a soft launch to gradually introduce your product to an exclusive audience such as friends and family, social media connections or a limited geographic area. Or label your first release a “beta version” to make clear to the market that you’re seeking feedback. Then buff and polish your product before an official launch.
4. Overspending. Even though you might think you’re being frugal, it’s easy to overspend in the early phase of your business. Office and furniture rentals, high-priced print collateral, superfluous employees, and travel and entertainment expenses can eat through your capital before you reach profitability.
The fix: Stay as lean as possible right from the start, and diligently look into free or low-cost alternatives for every single expense. Instead of renting your own office, find shared office space by searching resources such as Co-working Wiki or the Coworking Visa Map. And tap free apps and inexpensive online platforms to access business services, such as Wave and GnuCash for accounting or LegalZoom and RocketLawyer for legal documents. With simple options like these, each dollar can stretch much further.
5. A lack of flexibility. While a business should never lose sight of its core offering, evolution is often necessary. Changes in the market, customer base, or technology capabilities may provide opportunities for enhancements, and many a failed enterprise has suffered at the hands of an owner who dug in and refused to adapt.
The fix: There’s a reason “pivot” is a buzzword among tech startups today. Even after your business is up and running, keep your thumb on the pulse of your market by regularly keeping in touch with customers through surveys or interviews. Engage with customers on social media; search for comments about your business, industry or product on Twitter; pay attention to reviews on public sites such as Yelp and TripAdvisor; and check the market against your business’s offerings.Print this article