13 Reasons Your Startup Is Going To Fail
Guest post by Stefan Knight - Account Manager, Startups at Amazon Web Services (AWS)
Statistically, only 1 out of 12 startups make it. How can you ensure your startup is the odd one out? In this post we’ll discuss 13 reasons most startups fail. Check your startup against this list and make sure you’re setting yourself up for success.
Startup mistakes usually fall into three categories:
1. Fundamental mistakes in the setup of the business
2. Product and go-to market mistakes
3. Investment/equity mistakes that leave you nowhere to grow
Fundamental Fails
#1: You and the team don’t have the skills. Fake it till you make it doesn’t work if the team is missing one of the foundational skill sets which include product development, sales and operations.
#2: You are overly reliant on a third party to design your product. The deeper the tech you’re building, the bigger the problem of outsourcing development to a third party. While it is possible to outsource development of your minimum viable product, you will ultimately need to bring the tech in-house to build IP value into your company.
#3: You (or your co-founder) didn’t realise that you might not be able to draw a salary for 12-24 months and your personal finances can’t sustain you.
#4: You didn’t plan and track your cash flow. It’s imperative that all founders understand how much runway they have. You definitely need to know how long you have until you can no longer afford payroll.
#5: You don’t ask for help. In stories of startup success, you will rarely hear about the lone founder who did everything without help.
Market Opportunity Fails
#6: You picked a market that is too small. VCs will quantify your total addressable market (TAM) and if it’s less than $1B USD, they’ll pass. You need a big enough market to warrant competition which validates that there is value in your idea.
#7: You’re aiming to incrementally innovate in a well established and/or highly regulated market. Instead, aim to disrupt a market as this will generate the highest potential value - as long as what you’re doing isn’t easily copied by incumbents.
#8: You expanded quickly off the back of your initial pilot traction thinking you achieved product market fit only to see your growth fall off. Traction from early adopters may be a false positive with respect to mass market adoption. There’s a great book on this topic written by Geoffrey Moore called Crossing the Chasm.
#9: You don’t listen to customers’ feedback on what matters to them. It is rare that your go-to market strategy will survive an initial market test. You may need to pivot if you find an even better problem to solve for your customers than the one you initially thought your customers had. Shares, Investment and Equity Fails
#10: You took money from a bad investor on bad terms. If an investor is interested, ask for their termsheet at the outset. There’s no point in doing any kind of due diligence with them if their terms aren’t acceptable. All professional investors have standard term sheets so this isn’t an outrageous ask and if they say no, you’ve just saved yourself time and hassle. Read Venture Deals by Brad Feld.
#11: You didn’t plan for co-founder breakup which could leave you with half the equity you thought you had. Setting up vesting for founder shares as well as employee options is the basic protection against this nuclear scenario – everyone earns their equity stake over time.
#12: You and your investors have different visions for your potential. Given it takes 7-8 years for a startup that has evolved into a real business to have a material exit, you wouldn’t want an investor was solely focused on an early exit.
#13: You take too much money too soon with too little value or you offer too much equity to advisors and employees so you don’t have the right cap table math to attract investment. There’s an excellent inforgraphic on this topic at adioma.com called “How Startup Funding Works”. Venture Deals by Brad Feld is a go-to on this topic.
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Want to learn more about how to avoid common startup mistakes? Startup Onramp’s Founders Course has been designed for early-stage startup founders, and anyone working on a startup idea, to help them beat the odds and build a successful company. Find out more here.
Photo by Startaê Team on Unsplash
