4 founder mistakes that make most startups fail
Have you heard that 90% of startups fail? It’s a statistic that gets bandied about quite often and unsurprisingly puts a lot of people off investing in or launching them. But having launched and invested in several startups myself over the past 15 years, I have seen several reoccurring mistakes by founders that account for a large percentage of these failures. Here are the four biggest ones.
1) Believing that revenue is optional
This is indigenous to the tech startup scene, but it definitely crops up elsewhere too. There is a mythology, perpetuated almost entirely by the Silicon Valley VC set, that a startup is somehow a new and trendy concept whose primary model is basically “raise lots of money, acquire as many users as possible, and then figure out how to monetise them or sell to someone who can”.
It’s a seductive idea because, for the founder, it bypasses the daunting prospect of having to worry about revenue, sales and all those other scary things. This feels great of course, because it allows the founder to stay in their comfort zone and indulge the satisfaction of making the perfect product without having to rely on sales to get there. In reality, it’s merely delaying the day when the company has to face rejection and criticism from potential customers.
It’s an approach that taps deep into our human fear of rejection and failure and promises a comforting alternative where these fears can be avoided altogether. It’s such a powerful fear for most that an enthusiastic, widespread and elaborate mythology has developed around this type of “business model”, with the sole purpose of trying to affirm something that we want to be true. But it isn’t true: a startup is a business, and sooner or later it needs to make money. Founders who realise this and have a plan to monetise from the start are far more likely to succeed.
2) Underestimating the importance of cashflow
I learned this lesson the hard way when my first business was snuffed out almost instantly by a lack of cash. The rate at which the cash ran out was much faster than I expected, but the speed at which the rest of the business fell apart as a result of running out of cash was alarming. Thankfully I was only 24 and was able to recover fairly quickly, but I see the mistake being repeated over and over again with new startups.
Why does this happen? Similarly to the previous point, it’s largely avoidance psychology: the prospect of running out of cash triggers the primal fear of failure so people will go to surprising lengths to avoid facing it. Naivety is also often a major factor: spending too much on the less important things such as big plush offices and equipment, hiring too many people too quickly, failing to hustle and negotiate better deals on costs, and other such missteps. Lack of information is a common problem too, as critical cash drains like tax, insurance and travel costs are often either underestimated or simply not accounted for in the early forecasts.
All of which is avoidable with some proper planning and research before you dive in. Founders who are willing to spend the time doing that (often tedious) groundwork are giving themselves a much better chance of success.
3) Focusing on the sexy stuff
Being successful in business is hard work, everybody knows that. But what separates many successful founders from the rest is their ability and willingness to do the tedious, repetitive work that drives a business forward day in and day out. In other words, pushing through the grind instead of focusing entirely on the sexy and glamorous work.
The problem is that it’s very easy to be extremely busy as a founder, as there are so many things to do at any given point. And as human beings we naturally gravitate towards the things we enjoy first, leaving the boring slog work until later. As a result, many founders who are guilty of ignoring the truly hard work probably don’t even realise it, only to scratch their heads when it all goes wrong.
By grind work I am not specifically referring to admin — which can easily be automated or outsourced in a number of low cost ways today — but rather activities such as analysing your customer behaviours every day, trawling through social channels daily to build up momentum, writing regular blog posts that nobody seems to read, speaking to tax advisors about R&D credits, filling out patent and trademark forms, building and testing marketing and sales automations, and all the other energy-sucking bits of unsexy work that go into building a business’s early momentum. These are all things that a founder must be willing to do themselves at first, knowing that the reward is much further down the line. Many founders make the mistake of believing that they are above this type of work from day one, and they are nearly always wrong.
4) Giving up too easily
This is a big one, but I see it derail people so often (myself included, in my earlier ventures). At some point, the general struggles of starting a business up from scratch will become overwhelming, and some major problem will push the founder to the edge of wanting to quit. I refer to this as the wall, in reference to the wall that marathon runners hit when their body starts screaming at them to give up.
This is often a critical milestone in a business’s development. Just as in a marathon, a person’s ability to push through this wall is a huge determining factor in their likelihood of finishing the race, and business is no different. But really, this is the central essence of running any kind of business. The ability and fortitude to overcome difficult challenges is one of the foundational characteristics of any successful founder, and the struggle should be the fuel that drives them. Founders who expect, embrace and face challenges head-on will be amongst those left standing after the 90% have faded away.
The 90% statistic is accurate, but it is also an oversimplification of the landscape. Succeeding at business is not a game of chance, it is a battle of will where the most realistic, durable and pragmatic individuals thrive. Founders who have, or are willing to build, these characteristics will have the best chance of being in the 10%. Those who don’t or won’t, will be found out quickly enough.