Newsflash: Contrary to what Mark, Steve and Elon might make you believe, 92% of startups fail within 3 years.
Building a startup is damn hard. Or as Elon Musk once put it: ‘starting a company is like eating glass and staring into the abyss. You have to do lots of things you don’t like’.
Startup founders are however the ones that make real change happen. If you manage to eat glass long enough, you might just change the world a bit.
To help startups increase their chances of making a dent in the universe, we have listed 5 common pitfalls of startups. Use them to your advantage, it is hard enough as it is already:
Pitfall 1: Building something nobody wants
As straightforward as it sounds, this goes wrong all the time. A startup has burned through its seed capital to build their amazing game-changing product. The product is launched. And then…
The hardest and riskiest part of a startup is not building the product or monetizing it. Its building something people really want. Right now.
Or in the words of Paul Graham (Founder of Y Combinator): ‘When you have an idea for a startup, ask yourself: who wants this right now? Who wants this so much that they’ll use it even when it’s a crappy version, one made by a two-person startup they’ve never heard of?’
If you can’t answer that, the idea is probably bad.
Pitfall 2: Running out of cash
Raising a round of capital typically takes anywhere between six months and one year. Many startups fail to realize this simple fact.
As a CEO, you should always be raising capital. Additionally, building a product always takes longer than you envision it too take.
Pitfall 3: Not the right team
People. People. People. People. People. It can’t be stressed enough: people make a startup tick. Why? Because execution is a 1000 times more important than an idea:
Imagine a brick that weighs a ton. Image yourself lifting it. Now actually lift a brick that weighs a ton.
Execution is about reality. It is about doing the work. It is about overcoming resistance and starting before you are ready. And without a good team, you will never be able to execute.
Pitfall 4: Premature scaling
Scaling properly and orderly is incredibly difficult. In fact, 72% of startups fail due to premature scaling.
Fred Destin (General Partner at Accel – Famous VC Investor) defines scaling as: ‘the period in a startup’s life when management and board feel like they can systematically accelerate growth with the confidence that the resources they put in will yield great and measurable results’.
Destin sees three main causes for the frequent failure to scale:
- It is difficult to know when you have ‘Crossed the Chasm’ (repeatable business model and market readiness)
- Cash burn and working capital issues are intensified
- It is much more difficult to pivot
When you feel you are ready to scale, ask yourself the following questions:
- Have I built a repeatable customer process from acquisition to conversion to onboarding to customer support?
- Have I built a solid infrastructure of systems where the majority of my processes are automated?
- Do I have the team (read: salesforce) to scale?
- Do I have the cash available to fund my growth?
Pitfall 5: Timing, you are too early or too late
Bill Gross (serial entrepreneur – founder of idealab, an incubator for new inventions, ideas and businesses) gave a very interesting Tedtalk in 2016 titled: ‘the single biggest reason why startups succeed’.
In his talk, he addressed a question that had been bugging him for years: Why is it that great teams, with a good idea that execute well still fail?
He looked into approximately 200 companies and found that the single biggest determinant of startup success was timing. 42% of the success was defined by good timing, as opposed of or example funding or a proper business model.
So, to quote once again the legendary number fourteen, Johan Cruyff: ‘You can only be one time on one particular moment. If you are not there, you are either too late or too early’.