Why do 90% of startups fail? How can you avoid following in their footsteps? How can your business become one of the lucky 10%? We’ve witnessed so many stories and we’re here to share what we’ve learnt. If you liked the first part of this two-parter, you’ll definitely enjoy this one, too. However, even before you dig yourself into the article, there is one thing to keep in mind that cannot be overemphasized in the European ecosystem: failure is not something that should discourage you from trying all over again. Keep reading to learn from the mistakes that others have made before you, but if it comes to the crunch, don’t be afraid to learn from your own mistakes and get back up on your feet!
4. Weak management and team
Issue: Entrepreneurs who set out on this road alone often find themselves on a complicated pathway. Having reliable business partners or a team is certainly an essential when we are talking about a successful company.
In the early and the growth stages in particular, but basically in all stages of a company’s life cycle, one of the biggest assets is a competent team that actually is capable of making the common dream come true.
If a startup fails to build a strong background of hard-working colleagues whose professional experience covers every crucial area needed for that specific startup, the effects could endanger the whole business.
Moreover, unprofessional or dysfunctional management often results in weak strategy, a lack of looking at problems from different angles, and it can aggravate frustration in the organization, perhaps quickly escalating into open conflict. This can happen when, for example, college friends from the same class want to found a company together. If they are both IT professionals even with the greatest qualities, which of them is going to be responsible for and actually successful and efficient at business development? Something that requires a completely different skillset? Another common problem is when startups hire the smartest applicants, but they do not really complement each other in terms of strengths and weaknesses – it won’t help to have a smart team, if they cannot work together because they’re not a good fit.
Solution: Building an appropriate team is a crucial factor for startups; the ideal team members’ skills and knowledge complement each other and will contain people who have different perspectives. At the Early Bird Course at the KassaiLaw Entrepreneurship Academy, we devote a separate section to building a successful team in which you can learn to use the different tools, such as personality tests, to point out the different angles to be considered when you need to build a highly motivated and competent team. We can agree on the statement that a dedicated team is a kind of arrangement that allows the members to help each other, learn from each other, and put in a concerted effort in order to achieve success. Active communication and trust between the team members is also essential. All in all, we can say that putting together the ‘dream-team’ is indeed complicated, and if an entrepreneur has no such experience in human resources it is worth considering hiring or consulting a professional who does. Furthermore, it is not just the beginning when startups should think about the team and management: it is an organisation that needs constant – both personalized and community-oriented – care and development. Finally, if necessary, entrepreneurs have to learn how to deselect employees who have a harmful effect on the company’s achievements.
5. More successful competitors
Issue: On one hand, for a new company, fierce competition can be beneficial because it motivates the startup to make progress, but on the other hand, it can be an inconvenience if it suffocates the start up. Which is what happened with Fastbee, a food delivery service which allowed people to order fabulous streetfood via an app and collect it from nearby vending machines. Unfortunately, they could not withstand the fierce competition from new players entering the market, and they had their last day on August 14, 2018.
However, it is a fact that for startups a competitor represents the most inescapable challenge. It does not matter if that competitor is a giant business that rules the whole market and does not let anyone take its throne, or simply the startup doesn’t stand out from the countless other startups that are launched regularly: having any form of competition in the market is challenging, but it is the rule of life, and only the strongest will survive. Founders who don’t focus on this angle, who are not aware of their competition, are often not among the strongest and fail before they could even begin.
Solution: Brand-new small businesses will not get far if they do not employ serious strategies to get ahead of their competition. The first step should be to determine who the real competitors are, and who are the potential challengers. After that comes careful monitoring of the competitors’ actions: every startup should enhance some ‘stalker skills’ to see what initiatives their competitors pursue. An easier trick to survive against strong competitors is to excel in one specific area: you do not have to be strong in every aspect of the business or better than your competitors in every area in order to succeed. By exploring the market, startups should find one weak spot to exploit, and aim their efforts at making a breakthrough there, carefully protecting their intellectual property (IP) – if needs be – with a comprehensive IP strategy. Another simple rule is focusing on customer feedback and learning from it, in that way the startup can stand out from the crowd. Always remember the rule of thumb: if there are no competitors, then you really should think twice, and probably read section 1 of this article once again.
6. Problems with investors
Issue: Alongside innovative ideas and business models, we cannot forget about the huge role of investors when we are talking about brand-new businesses. Startups also need a steady flow of funds, especially in the early stages, if they are to turn those ideas into reality. It is important to find financial support, but a very common mistake made by startups is that they are not selective about their investors. A business can easily float off in the wrong direction if a startup is searching for investors in the wrong places and fields that do not fit their profile. They do not run a background check on investors, so in the end they often find themselves in a really unflattering business relationship. When things go bad with an investor, it can get ugly pretty quickly as evidenced in the case of ArsDigita, where investors eventually took over the company and started making bad decision after bad decision. Read the whole story from one of the founders here.
Solution: When it comes to investors, startups need to have a clear-cut conception. Depending on which stage the startups are in, they should find investors who are a perfect match for them, and with whom they have a common interest when it comes to business. Sending your material to investors who focus on a field other than yours, or on startups at a different stage or who already have a competitor in their portfolio will get you nowhere, the response won’t be positive. Pick and choose your potential investors and approach the ones who look like a great fit.
In short: do your homework before even considering going out into the field to hunt!
Determining how much money they are asking for, is also a must. By the time they decide to sit down to the negotiating table, startups should already have a comprehensive knowledge of their investors. Do not be afraid to ask about the investors and their motivation. You seriously need to know who you get into business with. It is worth spending enough time to find the investor who completely fits the startup’s team in every possible aspect. Even choosing the right time to look for an investor is key: often startups end up with investors they normally would not have wanted as part of their company, because they waited too late to look for the right one, and they could not afford to pick and choose. Waiting until you actually need the money is not a smart choice: start searching way ahead in order to give yourself the opportunity to be selective.
7. Poor or no marketing strategy
Issue: Last but not least, a startup could easily fail because of marketing problems. No matter what kind of business is started, some marketing mistakes are inevitable, but startups in particular have to face a unique set of marketing challenges, an aspect of which is limited resources. In connection with this issue, businesses often choose the wrong path and speak through the wrong channels, as a result they cannot engage their customers. Sometimes they spend too much time and money on brand perfection or they do not trust a professional to build a strong marketing strategy. The latter happened in the case of Overto, where, as founder Pawel Brodzinski wrote, when they got to the point where it was time to do marketing, “unfortunately none of us was skilled in that area. Even worse, no one had enough time to fill the gap.” Lack of marketing was not the only reason this start up failed, but it definitely was one of the main ones. For startups, it is often difficult to find the right audience for their products and they choose the wrong way to propagate them.
Solution: Nowadays, thanks to technological progress, there are broad spectrum of avenues for marketing in the form of electronic, print, online, mobile, and video advertising. Startups should fully utilize these opportunities in the most creative way that is possible and hustle their way to their audience and market. They have to pick the most appropriate means, which perfectly fit their profile, their customer and their products. The financial aspect is also very important, it is worth considering the most cost-efficient way of achieving a great marketing strategy. Planning is key: with limited resources, startups cannot afford to shoot blanks: startups more than anyone need to create innovative marketing plans, place advertisements, and let people know the value of their products or services.
Why shouldn’t you be afraid of failure?
We can all imagine how devastating it would be to spend money on something we thought would work, but then does not, or when we believed our idea was perfect but in the end, we could not make a success of it. However, failure is nothing to be afraid of – instead, it is something you need to face and be responsible for learning from.
Alongside all the risks and dubious options we should consider one question: Could we name one successful person who has never failed? Just to consider one example, Bill Gates, his first business, the Trif-O-Data did not make it very far before it had to be closed down, but we all know how Bill Gates’ story ended with Microsoft. Failures are lessons from which we can really learn, so we should treat our fear as a challenge and not as an enemy. It is never too late to start over with brand new ideas and perspectives.