Managing a startup can be an extremely fruitful opportunity but it certainly comes with its fair share of risks. According to an article by SmallBizTrends, only 56% of startups make it to year 5 - meaning almost half of all startups fail within the first 5 years of inception.
Business decisions at that stage are significantly impactful and must be considered with the utmost care as they often have lasting effects on the success of your organization.
In this article, we'll dive into the 4 most common startup mistakes that businesses make and what you can do to avoid them.
Poor Financial Management
Problem: Businesses of all sizes, maturity, and success require an intricate level of financial management. However, this problem is most common among startups. Poor financial management is one of the leading causes of startup failure.
Solution: Formulating the right team around you is vital to the success of your startup. Hiring an experienced CFO or working alongside a qualified business consultant is an extremely important decision to ensure longevity among your organization. Developing a short-term and long-term financial plan will help prevent excess or frivolous spending.
Your situation will dictate the appropriate asset decisions for your startup, but general advice is for startups to consider investing conservatively.
A business consultant specializing in finance or a professional CFO can help you develop a budget sheet for your organization. They can help manage and maintain income statements, cash flow statements, budget sheets, etc.
Problem: Developing a product or service requires generous market conditions.
Solution: The sale point for your startup must provide value to a sizeable market at the right time. Recreating a pre-established product or service with no value proposition, to a market that does not provide the prospect of growth, at a time that does not warrant a need or solve a problem will ensure failure. Make sure your concept is capable of performing under the market conditions.
As mentioned, the product or service your startup is offering must have a unique value proposition. Oversaturating a market with a replicated commodity does little to entice purchasing. Your product or service needs to be markedly different from anything that already exists and must provide a solution to a problem or need.
Upon entering a market, it is important to have a very strong understanding of your target audience, their purchasing habits, the size of said audience, the competition already in the market, etc. It is simply not enough to have a great idea or concept. Full market comprehension is imperative to marketing your product. Choosing the wrong market to enter can be a horrendously tragic mistake.
As previously mentioned, your product must provide a solution to a need or problem. "Nice to have" is not nearly as impactful as "need to have". Timing plays an important role here - you don't want to introduce your product or service before there is a need and entering too late could cause a dramatic shift in the competitive landscape where siphoning market share may be insurmountable.
A Lack of Concentration
Problem: A startup with scattered ambitions can end up falling short of representing and serving your business’ vision.
Solution: Clearly define your goals and work toward accomplishing them. Focusing on a few goals during the startup stage is beneficial for centering your business’ efforts on what matters most.
Create a Business Plan
Concentrate on your goals with a business plan. Business plans provide you the steps it requires to reach your business goals. Compose a plan for your startup’s strategic development over a chosen time period. With a carefully cultivated business plan, expansion is in your future, and new or improved goals can be considered later.
Some elements of a business plan include a market analysis, financial strategy, asset management, logistics, etc.. Specifying the confines and freedoms of your business will help those involved in the startup understand the focus of the company.
Analyze the Progress of Your Team
To see if your team is on track for completing the goals listed throughout your business plan, you must analyze the progress of your team.
Some organizations look at attendance of team members to determine progress. Others examine data for sales to decide if the team is advancing toward the company’s goals.
Documenting the progress of your startup team can be accomplished by writing an analysis of company achievement or performance. Once the startup matures into an enterprise-level organization, it will be helpful to have documentation detailing the history of company performance.
Celebrate When You Meet Your Goals
A startup requires a LOT of work and there are often more failures than successes. Often, owners and founding members are extremely passionate about their business concept and will overtly work themselves into mania. It's important to enjoy the victories - no matter how small!
When you meet or exceed a goal, celebrate with your team. Have lunch catered for the team in the office or go out and participate in a team building exercise such as an Escape Room.
Praise goes a long way, so this is a great opportunity to show your team that they’ll be rewarded when they work hard to accomplish operational goals.
Consider the Takeaways
A summative evaluation is beneficial for noting the successes and failures of the team.
When executives in a business look at these factors, they can determine whether or not changes and other implementations should be made for future projects. It can also be beneficial in clarifying company goals for the future.
Whatever your takeaways may be, taking those to create change within the company is the key point of evaluating your business’ success.
Problem: Occassionally, a startups business concept does not pan out as intended in the initial market and the concept pivots - or the concept pivots unintentionally.
Solution: Remain flexible and plan your pivot carefully. If you see the opportunity to proceed with an idea that seems promising, carefully consider the impact the move could have on your startup. Negotiated decisions to remain loyal to your business’ vision can save your startup from a misfortune.
While you should remain flexible, don’t flip-flop. Even if going back and forth doesn’t seem to impact the business in startup mode, it could be harming the scale-up mode process. Flexibility is having a range of motion.
Flip-flopping is a sudden reversal. Don’t reverse the trajectory your business is headed for. Make thoughtful decisions to progress your startup.
Concept Illustration: CodeLaunch
Code Authority was a startup in the early 2000s. Now, at an enterprise-level, we manage a yearly startup expo and national seed accelerator competition founded by our president, Jason W. Taylor.
In 2012, Code Authority founded an annual seed accelerator competition between individuals and groups that have software technology startup ideas called CodeLaunch. Following the recognition of time, budget, resources, and target audience, CodeLaunch was developed as a once-yearly startup expo as opposed to a year-round concentration for the business.
Dedicating a block of time for CodeLaunch activities allows our professionals at Code Authority to focus on the clients and tasks to be tended to throughout the year. The startup expo’s importance is not diminished, yet it has a defined duration.
CodeLaunch was not produced when Code Authority was at a startup level. More than a decade from institution, the startup expo was established and had a solid foundation to operate on due to the concentrated efforts from the startup stage and on.
CodeLaunch VII is taking place at Comerica Center on Wednesday, July 31 this year, and the event will be bigger and better than ever before! To find more information about the event and purchase your tickets, click here.
While entrepreneurship requires the risks and rewards of the company the businessperson’s ultimate responsibility, a startup demands carefully-considered decisions to advance to an enterprise-level business.
With business consulting, startups can develop strategies and positioning tactics to keep their company advancing toward enterprise-level business.
Set your company up for success from formation by working with our technical specialists. Code Authority offers services from digital marketing to custom software solutions for your business. To learn more about what Code Authority offers clients, contact us today for startup digital software assistance.