12 common mistakes startups make
From optimistic revenue streams to unrealistic dreams—here are the some of the most common mistakes startups are making today.
by Andreas Spechtler
THINKING TOO SMALL
Startups think too small and do not consider the implications of becoming global at their inception.They are too focused on regional/national markets and have little knowledge of how to do business internationally. Consequently, they miss the huge global business potential.
Recommendation: Think global and enter the market where your potentially biggest customer is located. Focus on getting a global deal first from a tough early adopter.
Startups often lack confidence about their own abilities, although they have all of the ingredients for success. The founders are very well educated and have developed great technologies or products but do not fully believe in their own big success.
Recommendation: You need to want to conquer the world and be super confident even if you fail in details – never lose the “north star”. (In Silicon Valley, however, the reverse condition is a more common mistake).
Many European founders want to become rich and be recognized as serial entrepreneurs whilst maintaining their current pace, believing they can have the the same energy and life. They want to become famous and super rich, but such motivations will limit their success: others will see selfishness.
Recommendation: Forget about becoming rich and famous, the reality is that you will work like crazy and have no or very limited time for anything else. Prepare yourself for this ongoing battle, it will last several years. If you are not ready for this fight, do not start a company.
FALLING INTO THE FRIENDSHIP TRAP
Many startups are created by friends who come together and have a “great idea”. At the time of the foundation, most of these friends do not know each other’s true character, abilities to execute and deliver, and often forget the “ego issue”. Many startups fail because of personal problems between founders.
Recommendation: Do not found your startup with your friends or family members but choose professionals who know their area, sign written agreements. Shaking hands is not enough. You still can have a lot of fun, and the chances for success are much, much higher.
THE GARAGE COMPLEX
Many startups believe that they have such a great idea that they need to careful not to share too much of their idea. The (sad) truth is that almost every idea already exists somewhere in the world. Having an idea is not a business!
Entrepreneurs who would rather “stay in the garage” and keep developing their technology in isolation are often surprised when customers or investors do not want/need it.
Recommendation: As soon as possible, go to market, meet potential customers and experts and get their valuable feedback. Forget about NDAs in the first phase, this might make access to the right people difficult.
UNDERSTANDING THE COMPETITION
Many startups completely underestimate the competition. Even worse: They have not done a proper competitive analysis which limits the ability to learn from the mistakes of the competition.
Recommendation: Take a deep dive into the competition, try to meet competitors and discuss common market trends and issues, try not to replicate their mistakes and constantly watch your competition.
WHERE’S THE MONEY?
Many startups do not know how to make money, and they are not clear who their customers are. They also miss a clear value proposition and risk not capturing the full value from their customers.
Recommendation: Get support from industry experts who help you to find the right business model and pricing. Do not rely on your own thinking.
THE HOCKEY-STICK DREAM
Almost all startups create the hockey-stick-like revenue plan to attract investors or partners without thinking twice why the third year will always be “the big year” with profitability. The Excel is always right, but not the thinking behind the spreadsheet, which can destroy your startup.
Recommendation: Be very realistic about any revenue projections beyond year 2; no reputable investor believes those numbers anyway and will discount your numbers. Do not be surprised. Focus on the next 18 – 24 months and have a solid “bottoms up” revenue planning process.
NO CLEAR LEADERSHIP
As many startups are started with friends, leadership is often absent because the founders feel that they each have equal rights in leading a company. This might work at the beginning, but as soon as the company grows, this becomes a critical limiting factor. Employees need strong leadership – not a “feel good” atmosphere. Weak leadership affects all areas and can jeopardize future growth and capital funding.
Recommendation: Have a clear role and responsibility matrix amongst founders and one leader must be the CEO with all of the power to make things happen. Customers and investors do not like the two-headed startups, they want clear structures that are accountable.
FAILING TO CROSS THE CHASM
Many startups fail at the first early adopting customers phase (innovators and early adopter’s) as they don’t have energy to jump the chasm in order to reach the early majority in specific markets. The main issue is that startups tend to not focus on selected markets or have selected the wrong market.
Recommendation: Spend enough time select the right target market and then really focus with all of your resources on cracking it – reach a a good number of customers so you can state that you have reached an early majority in this market, don’t give up until you have achieved it!
CHOOSING THE WRONG INVESTOR
A lot of startups find out in a later stage of their life cycle that the investor they have chosen is the wrong one, e.g. different expectations on business or finances.
Many startups are not careful enough when selecting their first or second round investors—they treat all money the same, when investment capital for startups is most influenced by the quality of the investor writing the check.
Recommendation: Be very careful when selecting, you can ask a lot of questions to the business angel, corporate investor, or venture capitalist, don’t be shy. The key is to align expectations because the investor has a horizon for his return of investment… and be aware these horizons might change due to other events outside of your control.
RAISING INSUFFICIENT CAPITAL
Almost all startups raising too little capital, especially at the beginning in the Seed or A phase, as they think too optimistically and cannot foresee all of the execution problems at this early stage.
Founders tend to look too much at the cap table and worry about the potential dilution—they don’t think about having the benefits of having a smaller slice of a very large pie.
Recommendation: In the early stage you should raise enough money for at least 18 months without revenues and be sure things will happen that force you to go back to investors too early. You want to avoid a down-round. Dilution of founders is inevitable if they need to raise more money. You should do everything possible to have control over this process and not be forced to take new money on other people’s terms.