Running a startup is genuinely hard work. On any given day, founders and early employees have to make dozens of decisions that can drastically alter the direction of their company one way or another. Growing a startup is an even bigger challenge; many industry experts expect nine out of every ten startups to fail ultimately.
With an abundance of low-cost and easy-to-use software tools available to anyone with an internet connection, it has never been easier to start your own business than it is today. If you are one of those courageous entrepreneurs venturing out into uncharted startup waters, you might want to pay particular attention. Here are seven all-too-common mistakes that can quickly derail your progress:
#1. Lack of Product / Market Fit
CB Insights, an analytics company, focusing on startups and venture capital, looked at over 100 post-mortems – those blog posts written by founders detailing why their businesses failed – in search of insights into why so many startups shut their doors. It turns out that the number one reason, which was noted by 42% of polled companies, is the lack of market need for their product. This reason may seem like a silly problem to have, but it is more complicated than one may think. Product /market fit can loosely be defined as a situation in which a product or service is satisfying the needs of a market. How do you know you have found a product /market fit? Most startup veterans say “you’ll feel it when it happens.” When your product is selling quickly, organically spreading through word-of-mouth, and being used consistently it may have reached that golden point.
#2. Unit Economics That Just Don’t Work
Put simply; you need to make more money per customer than you spend to acquire and service that customer. If the unit economics do not work out in your favor, chances of long-term success are minimal. Spotify, the behemoth music streaming service, has over 90 million subscribers and around $2 billion in annual revenues. Yet, when you take a closer look at the company’s numbers, it seems to be in troublesome waters, having to pay out well over 50% of revenue to licensees. It is important to understand your unit economics and do everything possible to create a sustainable business model.
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#3. Avoiding Customer Development
What do you know about your customers? Did you take the time to create buyer personas for your target market? The proven way to grow a startup is to start with the niche group of people most likely to love what you offer and be willing to overlook early growing pains when your product is not quite 100% perfect. There is an inherent danger in trying to boil the ocean when marketing to your customers. When Uber first launched the on-demand car service could have targeted “all the people who take cabs,” but that would have been too big of a project to tackle so early on. Instead, it focused on young and affluent city dwellers who wanted to “roll around San Francisco like ballers” and spread from there.
#4. Focusing on Customer Acquisition Over Retention
Nearly everyone knows some version of this adage: It costs approximately five times the amount to acquire a new user than to retain an existing one. While the top of your funnel is certainly critical, do not overlook the importance of keeping customers happy and engaged to maximize your marketing efforts.
#5. Ignoring the Data in Marketing
The term “growth hacking” has become popular over the last few years and for a good reason. The title references a new type of startup marketer, one who approaches tasks with a scientific mind, running experiments and iterating quickly to optimize efforts in the name of results. With so many data analytics tools available for websites, mobile apps, and digital marketing campaigns, you have no reason not to measure everything.
#6. Hiring the Wrong People at the Wrong Time
Businesses are only as good as the people who run them, and this has never been truer than with startups. As the company grows, your needs change and different types of employees are necessary. A two-person startup can get away with having one CTO who does all programming, but a 10-person company with plans to launch a mobile app will need an iOS developer and an Android developer. You do not need a Public Relations manager when you do not even have a product or office, but you might need one three years down the road. Start with generalists who can cover the most ground, then grow the team with specialists when you have funding and/or revenue and a distinct need for employees with particular skill sets.
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#7. Having an Unwillingness to Adapt Attitude
A pivot is when a startup decides to change a major part of its business and move in another direction. Before Instagram was Instagram, it was a check-in app called Burbn. The founding team looked at how popular the photo-sharing feature within Burbn was and decided to pivot to an app focused solely on that aspect. The idea you had when first launching your company may not be the winner you hoped for, but there may be a better one hidden away. By following principles like Lean Startup, you will be able to make more informed and data-backed decisions.
The first step in avoiding perilous mistakes like these is to acknowledge their existence. Once you have identified and studied potential pitfalls, you will be positioned well to grow your startup the best way possible.