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14 Common Mistakes Startup Companies Make

Starting your own business can be both incredibly rewarding and challenging at the same time. If you want to make a success of your venture, you’re going to have a steep learning curve ahead of you.

“Failure is instructive. The person who really thinks learns quite as much from his failures as from his successes.”
― John Dewey

As you progress, you’ll soon realize that your failures can be harnessed to improve your business and strategies. But why just learn from your own failures? Here are 14 common mistakes startup companies make.

#1 Cash Flow is King!

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According to a U.S. Bank study, 82% of business failures are due to poor cash flow management or poor understanding of how cash flow contributes to business. At some point during every business's life cycle, and especially during the startup phase, cash flow becomes a challenge. Owners often focus primarily on revenue generation. While that is clearly critical, without cash your company will quickly fail. Think of it this way - considering the earlier statistic - if you effectively manage your cash flow, you significantly reduce the chance your business will fail. 

Contributors: Ken Mr. Biz Wentworth from Mr. Biz Solutions

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#2 Not validating concepts and designs

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It’s easy to be excited about an idea with no market potential. It’s also easy to be blinded by opportunity and assemble a collage of existing technologies, held together with duct tape, that isn't functional even for those who want your product. In my experience, startups funded by bootstrapping or by friends and family tend to fail due to never validating the idea. While it’s bad design and testing process that tend to sink VC backed companies.

Contributors: Mason Pelt from Push ROI

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#3 Focus on Presentation Video

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We work with a lot of startup companies and when they have a new product to unleash, it’s only natural they'd want to show it off. Some startups we work with turn to us to make them a video for their startup. However, we have needed to ask some startups to hold off on a video until they have the product formed. Given how important a new video might seem to startups, many make the mistake of focusing on their presentation first, rather than the product. This is the wrong way to go about things.

A video is certainly an essential part of a marketing campaign, but that doesn’t mean a startup should jump in the deep end. Before we start planning their video, we need them to be able to explain what their product does, and why it can help people. If they aren’t able to do this, then we let them know it might be time to go back to do some fine tuning. Plus, they’ll want their video to really sell their product, and it can’t do this if they haven’t identified their product’s niche.

A well-made video will only be as strong as the product, and in such a crowded marketplace, the product itself has to do a lot of the talking, as people have become savvier to marketing techniques. A video is a vital part of the whole selling process, but it can only work if there is a clear, strong product behind it.

Contributors: Mike Vannelli from Envy Creative

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#4 Depending too much on one customer

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A complementary rule that goes along with the never running out of cash is to monitor a businesses’ customer concentration. What this means is to avoid having one customer represent a significant portion of your company’s revenue so that the business does not become dependent on one customer. A good rule of thumb is to avoid having one customer represent 20% or more of a company’s revenue. Of course, in certain instances, this may be unavoidable in which case it’s important to plan for growth in a manner that’s conscious of this big risk in the business such as hiring contract labor or investing in the sales team to bring down that number.

Contributors: Carlos Castelán from The Navio Group

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#5 Customer Acquisition Cost

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It is far too common for business owners to figure out how all of the moving parts of their business will work, but fail to account for the costs of acquiring new customers. Your business won't succeed just by offering a great service or product, and you will have to spend money finding people that are willing to pay. This cost is almost always more than business owners suspect. 

Contributors: Brandon Bateman from Brandon Bateman

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#6 Underestimating the T.I.M.E: Time, Involvement, Money and Effort

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Most Entrepreneurs underestimate the amount of 'Time', 'Involvement', 'Money' and 'Effort' required in getting a company off the ground. From experience, I would say you need to at least triple the amount of 'Time', 'Involvement', 'Money' and 'Effort' you had initially estimated to bridge the ideal and the reality of the journey. It is better to be prepared than fall short and jump half the well.

Contributors: A.Venkatasubramanian from Origin1299 Innovations Lab

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#7 Cutting Corners

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Many entrepreneurs who start from scratch with a kitchen-table start-up often make the mistake of thinking that they can cut corners by doing every job. The time that they waste doing things that aren't worth their time will lead to a loss of productivity and profits. One of the first things that new entrepreneurs must do is to have honest conversations with themselves as they take an unbiased look at their strengths and weaknesses. For jobs that they can't do, don't want to do or don't do well, they should delegate or hire an outside company. In doing so, they can focus on what they do best in order to see their dream become their reality. 

Contributors: Igal Dahan from Igal Dahan Jewelry

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#8 Neglecting the business plan

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A business plan is often neglected in executing a startup, this can also be a bigger blunder in handling the company financial goals and methodology of execution. A great business plan will always lead you to achieve goals in a more effective way and be efficient in handling all the financial activities of the startup.

Contributors: Syed Irfan Ajmal from SIA Enterprises 

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#9 Sticking with the wrong idea

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The most common startup mistake I see a founder sticking to their original idea even when it’s demonstrably wrong. If you’ve spent months or years working on something, I understand how hard it can be to throw the towel in and pivot to something new. But when you’re building a product or service that people don’t want, you’re wasting your time and your team’s resources. You need to take a step back and dispassionately assess what you’re doing and whether it is a good idea. 

Contributors: Will Craig from LeaseFetcher

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#10 Long-Term Agreements

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Products are often rapidly developing at startups, making specific components and volumes difficult to pin down. The result is a constantly changing engineering environment. This is great for innovation but creates a risky commercial environment for entering into pricy, long-term supplier/contract-manufacturing agreements. We regularly recommend to startups they should focus on entering into more project-based engagements with supply partners. These short-term prototype project engagements are great ways to build trust with supply partners by outlining, executing, and paying only for specific needs; quick wins at lower risk.

Contributors: William Crane from IndustryStar Solutions 

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#11 Team Anatomy

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For me, it was admitting that the people you start with are not always the ones who grow with you. The hardest lesson when I started my company was not getting rid of weak people earlier than I did in the first few years of my business. I spent more time managing them than finding new customers. I knew in my gut they were not up to snuff but out of loyalty to them, I let them hang around much longer than they should have. It would have been better for everyone to let them go as soon as the signs were there. They became more insecure and threatened as we grew which was not productive for the team.

As soon as I let them go the culture got stronger and the bar higher. A team people like to be surrounded by other stars. It is true that you should hire slowly and fire quickly. I did not make that mistake again later on so learned it well the first time. I wish I had known it even earlier though but lesson learned for sure!

Contributors: Paige Arnof-Fenn from Mavens & Moguls 

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#12 Build an Infrastructure for Human Resources

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Neglecting to build a Human Resources infrastructure, despite not having enough employees to justify hiring a full-time HR person is a common mistake that most startups make. By the time startups reach critical mass with headcount, founders often have made potentially litigious mistakes in benefits, offer letters and other hiring matters. The cost-effective alternative to either outsourcing HR to a PEO or to hiring a full-time HR generalist is to bring in a consultant to build the infrastructure and train an office manager or administrative assistant to handle transactional details.

Contributors: Lynda Spiegel from Rising Star Resumes

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#13 Not having partnership agreements in writing

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Not only should each partner’s responsibilities be outlined in an agreement, but also the agreement should contemplate potential disasters and address any ongoing confidentiality requirements after the relationship ends. Consider how long the departing partner should be required to hold the company’s secrets and be clear on exactly what those secrets include. 

Partnerships go sour, misunderstandings occur, one person’s actions create liability for the partnership, and unexpected deaths occur. Then what? The agreement should include those kinds of scenarios. What will the consequences be if there’s a breach? Is there a minimum dollar amount the breaching partner should pay? A strong partnership agreement requires thoughtful consideration of the business’s identity, its assets, risks, reputation, and management style.

Contributors: Kimra Major-Morris from Major Morris Law

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#14 Not defining the target market

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One of the biggest money mistakes to avoid is not spending time pinpointing your target market before getting your business up and running. The toughest business lesson I learned was: don't spend years developing a product that doesn't have a distinct customer base. I wish someone had given us that advice earlier, but maybe it's one of those things you have to learn yourself. You have to feel the pain before you appreciate it. It was difficult to pinpoint our market, as we knew we would never make money off the job seeker. Instead, we went after the broader consumer market. Another tough lesson I learned was: don’t depend on anyone else to make your business a success.

Contributors: Ross Cohen from BeenVerified

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Written by Zak Parker

Article Writer, Pianist, Internet Marketing Enthusiast; I delve into a variety of creative mediums and take advantage of what they have to offer. With experience in SEO, Dropshipping, Affiliate Marketing and Advertising, I'm a plethora of general marketing knowledge and enjoy helping those new to the game get their foot through the door. I'm always excited to hear of the latest method, or if the chance presents itself, create my own.

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