Top 5 Main Startup Mistakes at the Start

Beginning entrepreneurs often think that their business will be able to change the market. But, unfortunately, the statistics are harsh: 9 out of 10 startups close in the first year, and only 1 out of 100 manages to achieve real success in business. Of course, much depends on the industry and stage of development. Practice shows that 75% of Internet companies do not survive at the moment of scaling. Let's figure out how to become one of the "lucky ones" and avoid mistakes at the start.

Friction and disagreements in the team

Often, startups are organized by good friends, classmates or relatives. As a rule, this does not contribute to success, because one of the main factors for effective work is a strong team, where each participant is a team player with his own expertise, able to listen to others.

That is why it is so important to choose the right team at the start of the project. This will help to overcome the first difficulties and increase the chances of receiving investments. Investors also pay a lot of attention to the evaluation of the team: business is made by people and if later on, due to a conflict, one of the key employees decides to leave the project, this can be fatal for a young company.

Wrong business model or unit economics

Quite often, young companies, passionate about their idea and technology, do not devote enough time to calculating the business model. For example, how they are going to make money on it, or how much they can potentially make on it.
If the product is quite complex, then it is necessary to calculate:
  • what the company's income consists of,
  • how much it will take to attract a client,
  • how long this client, staying and using the company's services or buying these goods, will bring profit to the company,
  • how the company will attract new clients as the market becomes saturated with competitors, and the cost of attracting each new client only increases.

From personal experience: For several years, we collaborated with a successful startup that was engaged in the automation of the preparation of documents for obtaining visas to EU countries. My advertising agency Upmedia.pro placed ads for them and attracted clients. One of the banking structures was interested in buying the project, but they needed to prepare a business model and present it to the bank. The deal fell apart because the young team was unable to prepare calculations at the level that the bank needed to conclude the deal.

Not hearing or not wanting to hear what the client really needs

In the modern world, a product or service closes some customer need, solves his problem. The customer need can be identified by conducting a huge amount of research. Young companies often do not pay enough attention to the opinions of their customers or do not spend enough resources on research. Such mistakes often lead to customers leaving.

From personal experience: I worked on a project for delivery from restaurants. The project closed because the team was unable to conquer the market. At that time, many competitors appeared (about five companies offered almost identical services) and the service came out on top. The startup lost this fight due to insufficient work with feedback.

The market is already occupied or not ready yet

Sometimes ideas are ahead of their time. This really happens when the market has not yet been formed, and its size does not allow the company to earn enough to develop. An example is a startup that tried to offer fresh bread delivery by subscription (the market was not ready for this idea, the service was not in demand).

But the opposite also happens, the market is already fully formed and divided between key players, that is, the market is at a plateau, and the new startup is simply not able to get enough customers to continue its development.

The market is already occupied or not ready yet

The fifth point is, rather, the quintessence of the four previous ones. The company's revenue and the presence of an investor are determined by how the team is built, what kind of business model it has, whether the product is really in demand by the client, whether the market exists and whether it is possible to occupy it. If all of the listed factors are worked out, then the result of this work will be a positive decision from the investor and, accordingly, the availability of investments.

The absence of investments indicates that in most cases some of these factors were violated. For example, the airline ticket sales aggregator CORNER closed precisely because of problems with the investor.

What an entrepreneur should do

The most important point, in my opinion, is the thesis about the competent selection of a team (it is the team that investors look at first). With a team, you will be able to refine the business model and build the right unit economics, even if at some stage there were errors in forecasts and as a result the economics do not come together.

A strong product team hears and analyzes feedback from the market (client) and refines the product/services. A good example is ScentBird. This startup in the US retail perfume market with Russian roots has repeatedly changed its business model and as a result achieved great success. What remained unchanged was a strong team of founders and the initially chosen niche.

It is also important to find a good investor with expertise in your market at the start of work. This is why investors, as a rule, select projects (startups) with similar markets for their portfolio. Having such a strategic "partner" will allow you to solve the problem from point 4 (i.e. to understand the needs and readiness of the market for your product through analytics, insights, and a general understanding of the situation).

In addition, an experienced investor is able to see the non-obvious possibilities of your product, which may be hidden even from the founders. Such information is difficult to overestimate.
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