How And Why Start Ups Fail
Over the past few years I have interviewed 50+ start up CEOs and founders. I have worked with a handful of others. I wanted to take a moment and share some of the reason I have seen start ups fail in the past, in hope that it will help your start up take a good hard look at itself and make sure it succeeds! This is not all too different to why projects and new market ventures fail for large corporations.
Start ups and new businesses are constantly failing. They lose momentum, lack focus, and shoot for too broad of an audience. The purpose of this list is to allow start ups, or people planning a start up to check and see if they are practicing bad habits that will lead to their start up failing. To sooner your Start Up can figure this out the better!
If you want to make sure your start up is successful, no matter what type it is. This list of reasons why start ups fail will be a great help?
3 hour long meetings
Actually, it could be worse. I have helped a start up that would have meetings that ranged from 6-8 hours. This isn’t a start up problem alone of course. Large corporations have a similar issue. I once worked for a company that had a three-day-long 8-hour-meeting marathon to produce a new piece of software that never happened. Meetings can become self-indulgent and pointless spans of empty talking.
With a good agenda, and an actual problem to solve, a meeting shouldn’t take more than 45 minutes. If a start up team allows itself 3 hours for meetings, it will take all three. If the start up is forced to use only 45 minutes, then it forces the team to be more concise and to the point. Otherwise, they are merely large resource wasters.
Start ups and new businesses pivot now and again. Especially software ones. Why? Because it is easy to do. Let’s say you want to start a clothing line that makes men’s blazers. You have all your products almost done, you have a store set up, but you realize you want to change and start making vests. Well, you must have a lot of money to suddenly change your product! This is a physical business.
Software on the other hand, when developed well, can do just about anything! Without discipline, this allows entrepreneurs to switch industries or problem statements constantly. One pivot might make sense. However, if a start up or new business has made 4 pivots in the last 6 months. The start up has made a mistake somewhere down the line.
The Start Up Failed to Plan
Start ups start in different ways. Maybe a start up started when one person met someone at a meet up and came up with a great idea. Maybe the start up founder worked with a co-worker and they both decided to break off and build a new company. Great! Did they stop and make a plan from there? Start ups need a general outline for how they will operate, what their goals are, who is in charge, etc. This is a higher level point and some of the further points below will dig into this a bit. Without a plan, you will never know if you are going in the right direction.
Lack of Internal Infrastructure
For all you techies out there, no I don’t mean servers. I am referring to internal reporting infrastructure. Even a two person business needs to have clear boundaries on who is doing what. This allows for less hassle, more effective decision making, and less back and forth with every new idea, customer, etc. There needs to be some autonomy, and some decision making that can be done without wasting time emailing back and forth.
Lack of Hype and or Marketing Strategy
Let’s first talk about some examples of companies and events doing hype amazing! Looking at Disney with Star Wars and Marvel, or the Mayweather vs Mcgregor fight. Both are amazing examples of hype, content marketing, digital marketing, and almost every other form of marketing done well. Feel free to read more about good marketing strategies here. However, if you don’t have time for that. Just think about these two corporations and how they went from 0 to 60 MPH so quickly. I don’t even care about boxing, but some how I want Mcgregor to win! That’s how good they promoted.
A start up needs to build hype, either the co-founders need to read about digital marketing, or hire a GOOD consultant! This may be a little expensive. However, it does provide customers which equals cash! Don’t expect the grape vine to work if you never actually connect to it!
The Start Up Owners try to do everything themselves
I get it, you are trying to run on a shoe string budget. However, realize that the good competitors are not! Do you really think you will do accounting better than someone who has been doing it for 10 years? or write contracts when you have never done it?
Just do the math! If it takes you 40 hours to get up to barely functional speed for a specific task, for something someone was charging 500$ and would have done it 10x better. Let’s assume you are hoping to make $30/hr(which I hope you are planning to make more!). That means you lost $700
$30 * 40 hours = $1200
$1200 – $500 = $700
That is a bad trade off. They might have done it in an hour. However, it probably save you at least that $700 and possibly future legal and accounting fees you might have in the future when you realize you did all of it wrong! It happens more often then you think.
No Business Experience
Statistically speaking, if your start up does not have at least one member who has started a start up before, you will more than likely fail! I also see this happen a lot because the start up may have no real business experience what so ever! I get it, who wants to work for corporate america. I know the feeling. But my first terrible job where I was way under paid taught me so much! I worked right underneath the CIO of a company with a $500 million IT budget alone! I learned about strategy, positioning, project management, software development, accounting, HR, and the list goes on. Having that bit of experience is great. If a start up doesn’t have that, a start up is at a disadvantage. A start up won’t think of every detail that could go wrong, or box that needs to be checked.
Not Knowing How to Sell Your Product
This is tied with not having business experience. Most start-ups these days are built on technology, and not on a business model. This was ok in the days that Google was just starting out. No one had a business model for search until Google came around, have you heard of AltaVista? Maybe, but only as a story of what not to do! Google figured out how to actually monetize search. That is one of the many things that set it apart(its algorithm as well of course). However, the algorithm would have died if they had not built a way to create cash flow. You can be working on the coolest algorithm in the world and no one might ever know.
The Start Up Loses Momentum
Like Netwon’s first law of motion, an object in motion stays in motion. If a start up begins to lose momentum, it is all downhill from there. Start ups have to keep morals and energy high at all times. They can’t afford to stop, even once they have their first few customers. It isn’t over, it is just beginning. One of the key areas I try to help with is keeping that motivation. Part of this is by asking questions like, can you do this for 1 year and make 0 money, how would you feel, what stresses will you feel? Losing resources because they can’t afford to keep going can’t quickly derail a start up. Of course that is just one of the many ways start ups fail.
No One Takes Ownership
In business, ownership is important. Decisions need to be made, and although it is great to collaborate, at the end of the day, you could spend all day talking and contemplate every possible option. One member needs to take ownership on making decisions per department. Those fancy titles like CTO, CMO, CFO that start up founders enjoy brandishing, come with responsibility. You need to make decisions. Sometimes they are hard ones, like should we let go over developer A or B. Nevertheless, someone has to own it.
A very common issue is that no one really knows what there product should be doing. Or they know, and they want it to do everything. One group I worked with tried to make a music website that was going to
- Connect band members that wanted to jam together
- Inform users what bands around them they like
- Inform venues how many people to expect per each band they were interested in hiring
- Help predict music trends using the coolest new data science and machine learning analytics
- and on and on and on!
I think you are starting to see the problem! Start ups want to change the world. I get that, it is one of the many reasons people do start ups. It is important to remember that there is only so much that can be done. Facebook wasn’t built in a day! Remember there was a point in time you had to refresh your page just to see if you got a message or an update. Now, it just updates automatically (thank you web sockets). Focus on creating a core service first. Run your idea by someone with business experience to check if you are shooting to wide.
How Many Of These Reasons Start Ups Fail Is Your Start Up At?
Unnecessary Horizontal Movement
This is an odd one. I wouldn’t make this point if I hadn’t seen it happen. Start ups typically pick a vertical and stick with it, until you are Amazon size. Then you can go into every other vertical your heart desires. Until then do you! Don’t decide to suddenly start going into another market all together.
Now, why the forewarning. Well, one such team I worked on decided it would be a great idea to suddenly sponsor a fashion event, as well as a e-sports team and provide digital marketing automation. You got to scratch your head there. I get it, more streams of income is a good thing. Just make sure you have a stream of income to start with!
Not Picking Out Your Target Audience Out First
Going back to the music website example. This team not only wanted to do everything, they wanted to have everyone using their website. They did not target any specific market. Instead they wanted to have music listeners, band members, promoters, producers, and the rest of the entire world find value in their website. One thing I had to remind them of was that Facebook first focused on college students. Even then, they went college to college. They started their target market at a micro scale and grew from there. How do you pick your target market?
Communication Break down
Start ups are built up of all sorts of people. Some people like constant communication. Others like to meet twice a month and then go off and focus on working. Whatever communication a start up does should be consistent. If a member is very communicative, and then suddenly stops. It can cause unnecessary stress, and frustration. The key here is to set up communication guidelines. How often you should talk, how quickly a response is expected. Don’t be a Nazi about the rules. They are just guidelines. Things happen. Just try to keep the expectation there.
Not Being on the Same Page! Different than Communication Break down
Pardon the cliche phrase. It is a real problem that happens over and over again. When you take business and tech minds and ask them to play nice, they don’t always speak the same language. This leads to very different interpretations of the same words.
Failing to plan a pitch
In some ways, I hate Shark Tank. It has done the same thing Hell’s Kitchen has done to the restaurant industry. Don’t get me wrong, it is very stressful, but it is not so showy. You do want to make sure you have a pitch ready to go, and you know how to answer the hard questions. This is one of my focuses. Making sure start ups are ready to be grilled by investors. You don’t want to not have an answer to an investors question. Even points in this list will help get your mind thinking in the right direction.
Poor schedule alignment
Founders don’t always seem to have the same schedule. This causes some of the issues mentioned above like miscommunication. Thus, make sure you sync up schedules. If your team has someone who is a night person, make sure he still shows up at least by 10 AM(and that is pushing it). You want to make sure you all can meet at the same times, and don’t conflict just because one team member is sleeping. That just causes to many issues. Call that person out in the begining, don’t let it be a habit.
Not Being Efficient With Resources
Start ups have limited resources. There is limited cash flow, limited time, and limited man hours. Find an organized person to make sure all the resources are being used to the most effective output. This does not mean work 100 hour weeks..you might have to, but just because you work 100 hours a week, does not make you efficient. Getting 150 hours of work out of 100 hours of work does!
Not Making The Right Connections
In the world in business in general, it is a lot about who you know. You want new clients, but you don’t know how to get in front of them? Scour Linkedin, find events, seek out the people you want. Don’t be creepy obviously. Just make sure you have a target, and figure out how to get to know them and work with them.If they can either end up being customers or bring you customers, then your time hunting them down will be well worth it.
Most importantly, don’t waste your time networking because it is fun. I love networking, but! Like meetings, networking for some people is self-indulgent. You can tell people about how cool you are, or what you do, and for a moment you can feel important. Make sure you are networking correctly! Make a plan! (Wait, I said that already..wonder why!).
Not Nurturing the Connections You do Have
When start ups begin, there is this a tendency to close off from the world. Founders hunker down, hide in their homes and work on building strategies, websites, and products(MVPs). This is all good! One issue you run into is, no one knows you are doing it. Particularly, the people around the start up founders that want to support them!
Start up founders should make sure to work with their connections that they already have. Letting them know what they are doing, maybe they can connect them with that UI designer or the customer they are looking for. At the very least, they could post something about the start up on twitter, or facebook.
The Start Up CEO is Not Delegating
Whether it is a founder or a CEO, delegating is not always a natural tendency. A very small portion of people do it naturally. It requires trust, and willingness to give up control. That is not something us humans do well. Making sure the CEO or founder is delegating tasks quickly is another key factor. Get him or her away from micromanaging every decision. That slows the business down and limits their ability to make more important decisions.
Building Something Cool vs Meeting a Need
It is really easy to get excited about the wrong things (in reference to making a successful business). No company out there care about how cool your product is. They care how much money it saves or makes. That is all any company cares about. Does your product make us more or less money. Do we gain a competitive advantage, etc. etc. Another reason why first working for a company is helpful. How do you know what pains there are in a large corporation if you don’t first work in one.
Forgetting about B2B and Focusing on B2C
Do you really want to make an App or website that only makes $10 per user? Do the math, that means to make $10,000 you will need 1000 users. Can you really get 1,000 people willing to pay $10 each? Maybe, but perhaps it is easier to convince a large corporation to spend $3,000 or $5,000, maybe even more if you create a service that actually is worth it! It’s not the only way to go, just a common space start ups forget.
No One On a Start Up Team Has Read Any Business Books
Don’t tell me business books are pointless, and have no value. There is a reason so many successful people read them and there is a reason they write them(besides just making money of course). Business books are great condensed pieces of “How I became successful“. They are literally gold. My favorite list of business books is here. Go find a used copy, go to Amazon, maybe ask me if you can borrow one in a consultation! Nothing I am happier to do then provide knowledge.
Just don’t skip out on stealing valuable information that is being given away for free. It is not a waste of time!
A Start Up Doesn’t Have a UI designer
This is purely for tech start ups, which is not the only start up out there but they seem to be the most common. Get a UI and or UX designer. Trust me, back-end engineers rarely make intuitive design. In this modern world with millions of websites and Apps…people have high expectations. Unless the start up is trying to compete with Craig list. It will not get away with terrible design and user-flow. Start ups websites have to be intuitive. If the user has to get a tutorial, you did something wrong! Get a designer.
Start Up Members Lose Trust With One Another
When it comes down to it, start ups are families. Losing one member can break the natural flow of things. Unlike a large business, it is not so easy just to replace that member. Not only are you losing a bit of flow, you are losing a lot of knowledge. Large businesses are so compartmentalized that losing one team member doesn’t do much to the overall business. Losing one member in a start up could mean losing 1/5, 1/4..1/3 and maybe even more of the tribal knowledge collected by that member about the entire start up! So keep your members close.
Whether you plan to start a new business, a start up, check out this list. It will help you check and see if your start up is likely to fail. If you have a lot of these problems, it might be time to take a good look and see where you can start changing processes, plans, etc. Good luck! And let me know if you have questions.