Fact: Businesses Fail. Discover Four Top Reasons Your Startup Could Fail, and How to Avoid Them. 25 Mar 2019

If you’re a sand tiger shark, you have to cannibalize 90 percent of your siblings in your mother’s womb. That is, if you want to make it out alive. Startups are in the same situation: 90 percent will sink.

Why does this happen? Ninety percent of startups fail due to self-destruction, not competition. Failed startups achieve failure by efficiently doing the irrelevant. In other words, your success and failure are up to you.

If that’s the case, how do the successful 10 percent of startups become viable? The reason is they know how to skirt common pitfalls that sink the majority of startups. Successful startups do market research, share responsibilities among staff, focus on what matters, and scale up sustainably.

If you’re starting a business or want to start one, read on to find out how you can avoid four key pitfalls.

1. Pushing an Idea Without Checking What Customers Need

Why is it so important to prove your ideas through testing? Most startups begin with a clever idea. However, it’s a long, long road from the light bulb to a viable business.

Obsessed with their own brilliance, founders often try to take shortcuts, square the circle, or speed things up to get their idea to work. For example, they introduce many features or tack on nice-to-have elements. Yet, they overlook a core element of market research: identifying what the customer needs.

Here are a few practical steps to do market research:

• Talk to your users. Physically hit the pavement, pick up the phone, or hand out surveys to find out your customers’ struggles. Throw away all preconceived notions of what you think they need. To do this, avoid even mentioning your product or any features it might have at first. Instead, devote yourself to learning about your potential users. Identify their characteristics, demographics, how they live, and how their lives could be improved.
• Test. Among founders that have regrets, most of them wished they had done more in-depth testing. Your hypotheses are just guesses until they are proven. Jump into the chaos. Test and re-test your models, and make short-term plans that fail frequently. Every failure is a learning opportunity.
• Be realistic. Don’t spitball in meetings, prepare evidence. If somebody voices an assumption in the boardroom, call them out on it. Encourage testing of theories before they come to committee.

2. Being a One-Man Band Instead of Sharing Responsibilities

How do you gather enthusiastic, like-minded people around your idea? It’s a tough road for the mythical “solo founder.” You may have plenty of doubters early on, which is natural. Instead of dwelling on the negative reviews, use them to find valuable critiques.

Sooner or later, your business will need more than one person. Founding teams of two or more have access to wider business experience and expertise. A business partner also provides a sounding board for ideas. Another staff member might also provide emotional support.

A balanced team of three can work based on the following model:

1. Brilliant ideas and innovation (founder, CEOs)
2. Hard-nosed business experience (marketers, accountants)
3. Technical prowess (engineers, designers)

While many founders have a good handle on number one, they often lack the other two. Having a bigger team will help to balance out individual weaknesses.

3. Getting Distracted from What Really Matters

Early on in your business, you need to make sure your product-market relationship is strong. However, many startups get distracted with day-to-day challenges and forget the bigger picture.

Take the infamous Juicero example. The company had the lofty goal of bringing nutrients to areas of the United States in need of fresh produce. Its founder claimed to be the Steve Jobs of fresh fruit, and the “Keurig of juice” seemed like a brilliant idea. However, in the end, it was a $700 juice packet squeezer with Wi-Fi. Juicero focused on its company image when it should have been working on improving the product.

The top reason startups fail is simple: The market doesn’t need their product or service.

In a survey, not serving the market was the top response from startups when asked why they failed. Don’t think about competitors, cash flow, offices, or employees — these are secondary.

Here are a few other black holes of wasted time to avoid:

• Unnecessary meetings and internal emails
• Fun but useless trade shows or conferences
• Public relations, publicity, and social media

If you added up all your unnecessary work and time wasted each day, how many minutes or hours could you get back? Instead of wasting time, allot your valuable time to aligning your product or service with your market.

4. Not Knowing How to Scale Up Sustainably

To scale up successfully, you need customers flowing in the door and propelling a sustainable business model. From a long-term marketing standpoint, you also need to balance the cost of acquiring users versus their lifetime value.

Seventy percent of startups don’t know these two points. They scale up prematurely and create too much momentum. Soon, they don’t have the resources to handle growth. If they’re not growing, their momentum could slow because they’ve overinvested.

Business imbalance can happen in a variety of ways:

• The business scales at the wrong speed
• Your team doesn’t suit your business
• The business plan is poorly designed
• Financials are mishandled

To prevent scaling problems, remain humble. If you work hard and review regularly, you can nip mistakes in the bud. Stick with your bread and butter. Are you solving customer struggles? Does your product fit the market?

Most successful companies have at least one near-death experience to tell. Part of scaling up successfully is building the capacity to respond to these calamities. You need to have the power to make the right decisions at the right time.

Fail Frequently and Evolve Your Business

Remember our sand tiger example from earlier? It turns out we don’t know why sharks eat their siblings. Scientists have a few ideas: Cannibalism could be the result of evolution, sexual selection, genetics, or paternity.

Likewise, nobody knows why one startup becomes a “unicorn” and the other nine fail. Business is a complex mix of market, economics, consumer choice, and human intelligence. However, if you notice the trends of when startups fail and follow a few steps, you can skew the odds in your favor.

Trusted Employees uses market intelligence, data, and background checking to build integrity into your business. We work with organizations of all sizes — startups to enterprises. Contact us today to find out how we can help.