Why Do Startups Fail? Top Common Mistakes to Avoid

Why Do Startups Fail? Top Common Mistakes to Avoid 

“It is just a miracle that some startups even succeed. Startups that got incredibly lucky being at the right time with the right people succeeded. Most others with similar capabilities died.”

Balaji Viswanathan, CEO of Invento Robotics, Forbes – Jan 27, 2019.

For software startups, the stats are especially brutal. CB Insights found that 97% of seed or crowdfunded companies eventually die or become “zombies.”

So what are the real reasons to startups failure? Below we analyze those most common causes and suggest solutions to prevent them.

TLDR:

Startup mistake #1: No market demand for your product

Startup mistake #2: Lack of buyer persona research

Startup mistake #3: Inability to raise capital / Not avoiding cash burn

Startup mistake #4: Skipping the prototyping stage

Startup mistake #5: Neglecting to get feedback and criticism on prototypes

Startup mistake #6: Poor marketing and sales

Startup mistake #7: Not listening to users / Ignoring of what your customers want

Startup mistake #8: Lack of skills / Hiring the wrong team

Conclusion

Startup mistake #1: No market demand for your product

There are two reasons for no market demand – it is either not yet ready for your product or the market timing is simply wrong.

One of the most common mistakes entrepreneurs make is they don’t fully understand what their product can achieve in the market – specifically in the early stages. This leads to modifying projects’ goals and users’ pain points to satisfy another market.

To reduce your failure chances and market rejection risk put all the effort in validating your product in its very beginning, even before launching, do beta-testing and see what your target market is keen to have.

The market might also simply be not ready for your product. If you develop a mobile application that would only work on a high-end technology (or the newly launched untested technology), the market size of customers that have pain and have funds might not be big enough to support your project.

Ask yourself a question: is your target audience ready for the particular solution?

Startup mistake #2: Lack of market and buyer persona research

Skipping the market research will cause you tons of discussions, extra work hours, and expenses. Apparently, there are already products on the market that address the same pain points you aim to solve. And that’s a tricky thing, because grabbing the successful solutions and just copying them might also be a reason to your startup failure.

The solution to the particular issue is to accurately research the market demand and your target audience itself. This will save you time and reduce your budget in the future.

Buyer persona research will help you as a startup founder. You will get to know your customer better: the needs and preferences, distractions that annoy them and desires that push them to buy your solutions.

Find out who your competitors are, research for their strong and weak points, ask yourself why is your product/solution better than the one already offered on the market – leverage business and raise your potential competitive advantages. This is how you can make the target market literally switch from the existing trustful solutions to the one you are offering.

Startup mistake #3: Inability to raise capital / Not avoiding cash burn

Startup founders may be startled by the number of rejections it takes to succeed in fundraising for the project. The widespread entrepreneurs’ mistake is to start this process too late – raising capital in a startup environment needs somewhat six to nine months of active calls and meetings.

Define who is responsible for fundraising and reporting at your team. The more your team is into this process, the more exact you will understand what investors your company needs.

Nonetheless, a lot of startup founders want to build the perfect product or solution and launch only then. Well, that may cause inconveniences, to put it mildly. Especially when your project needs financial support in its earliest stages. That is when paying attention to cashflow problems on time will secure your startup from a failure. Track the following causes:

  1. High payroll costs
  2. Small profit margin
  3. High churn rates
  4. Low recurrence purchases

The more you face problems alike, the closer your project is to the cash burn. The reason is in the growing distance between being funded by investors and achieving mass scale purchases by the end consumers.

Startup mistake #4: Skipping the prototyping stage

When you have already figured out your competition, market demand, and your buyer persona there’s still a bridge to cross before the development process begins. We need to prototype and that’s a fact.

A prototype is a preliminary version of a product. An early sample that represents your app’s design, features, and possible interactions.

What do I need a prototype for? It is actually built to visually represent the application’s structure and interactions, as well as to test the concept and the processes. With a prototype, you will be able to uncover a lot of drawbacks and gaps and quickly eliminate them without excessive expenses. 

Don’t skip this stage, develop a fast low-cost interactive prototype that will look exactly like your app, but with no backend behind it. Meanwhile, changes to application backend are costly, having timely decisions on the changes will save you time and funds in the future. Software prototyping enables you to enhance the initial app’ idea and start development process with exact requirements and expectations.

Prototyping may also help in raising capital and negotiating with potential investors. You must agree, an ability to visually present the idea is way better than any alluring description. 

Don’t miss our guide on developing an app from scratch, you will find more about prototyping there. In our Mobile App Development Guide we unveil the 7 simple steps to build an entire mobile application, recommend effective tools and give ideas on how to develop the research-based strategy, design your app, find qualified developers, and deploy it to the market.

Startup mistake #5: Neglecting to get feedback and criticism on prototypes

It’s time to get the valuable feedback on your software prototype.

A lot of startup founders have trouble letting someone see their prototypes unless they are fairly ready. Though, getting a timely feedback is crucial to any startup. Have your prototype tested by a focus group, your investors, and shareholders.

Get your “app” into the users’ hands as soon as it is ready, get their feedback, and start improving it, tailoring the product to the market needs. This testing model will put your product into an improvement loop that needs to be repeated unless the end customers start demanding your solution.

Startup mistake #6: Poor marketing and sales

A buzz matters. The more information you spread about the product the better, otherwise, it won’t go up if no one knows about it. Poorly managed marketing and sales is one of the largest obstacles many startups face.

It’s good to have a couple of marketing gurus in your team but that is not something necessary at the very beginning. You can start making noise in the social media, industry magazines, and press in the early launching stages on your own. Remember to ensure you get published in the sources that are authoritative and trustworthy for your target users.

If your startup team isn’t managing marketing in a right way, no fellows will know about your product, hence nobody will buy it.

Startup mistake #7: Not listening to users / Ignoring of what your customers want

Seems that everything is done at this point… your product is on the market, a press release is published and you’re sitting with a cup of coffee, waiting for the income to flow in. Some startup founders relax too early. 

Listen to what people say, then keep on brainstorming on how to improve your product (based on the feedback) and always trust your customers – they know what they are willing to pay for. End users suggestions are the most valuable as they reflect the true demand of your target audience. 

Startup mistake #8: Lack of skills / Hiring the wrong team

There is not enough stress we can put on how important it is to hire the right team.

As a software startup founder you can’t do everything at once and on your own – for a business to take off. Therefore you need to find skilful professionals across the mentioned above industries to break the ice and land in the market. 

Every startup needs to have someone good at sales, management, marketing and, sure thing, at product design and development. Nevertheless, startups are relatively short on money in most of the cases. And so, software startup founders do the best to eliminate as much expenses as possible.

That is the reason why startups tend to hire freelancers or outsource the development teams. The advantage is evident – their work mainly costs less and you cooperate on the “work-done” basis. However, there is a risk to hire irresponsible freelancers. Spend time on researching the background and feedbacks about your potential employees. This time investment might save your startup from failure in a while.

The best solution is to cooperate with a reliable software development company as you will have all team members available at the same time and place. Outsourcing IT agencies have strong competition and are interested in a long-term partnership, therefore they will put a lot more effort to establish positive relationships with their customers.

Conclusion

Of numerous failed experiments, Thomas Edison once said:

“I have learned fifty thousand ways it cannot be done and therefore I am fifty thousand times nearer the final successful experiment.”

That doesn’t obviously mean you should repeat the failure experience, it’s more about that failures could be more of good lessons to be learned from. Employ the above solutions to common startup mistakes and avoid the startup crash.

We, at Synergy Way, have been working with startups for over nine years. Our essential technology expertise helps businesses – large and small, to craft up world-class web-based solutions and digital UX & UI designs firing up the target audiences. 

Are you ready to make something awesome together? Feel free to contact us and we will estimate your project for free.

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  1. Brianalack

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