The Pitfalls of Startups

Although everybody likes to talk about “startups” these days, most startups tend to fail before they ever gain any sort of traction.  This is enough to scare any entrepreneur, yet there are ways to avoid joining the ranks of many failed entrepreneurs.  You just need to recognize common pitfalls so you can avoid them.  I recently came across an article that shared some common pitfalls, listed below:

Partnering with the wrong investor: When you’re launching a startup, it can be tempting to take money from any source that comes along.  Yet that could come back to haunt you if that investor ultimately doesn’t share your vision and decides to exert their influence.  This is especially true if part of the investment contract includes giving the investor any level of control over day-to-day operations.

Lacking flexibility: Entrepreneurs need to be passionate and excited about their projects, but a lack of flexibility could lead to dangerous tunnel vision.  Many startups have crashed and burned because their founders didn’t know how to make adjustments.  Just remember that people buy what they need, not what you think they need.

Failing to identify your customer persona: One of the first steps to planning a startup is creating an effective marketing plan.  If that isn’t done effectively, then you won’t be able to gain the initial customer base necessary to create growth and profits.  The most effective marketing efforts are those targeted to the group of people with the biggest need for your product or service and is in the best position to purchase it.  If you create an “ideal customer persona” that prevents you from identifying that group, then your marketing won’t be effective.

Not choosing the right location: Money is tight for most startups, so you might be tempted to launch in a location where rent and other costs are lower.  But you often get what you pay for, and cheaper locations aren’t always the best.  You want to attract the best talent, which will be hard if you’re asking them to relocate to the middle of nowhere.  

Refusing to go into debt: Debt is scary to think about when you’re earning a profit.  Accumulating debt when you aren’t making money can be scary, but if you aren’t already flush with cash, then going into debt is all part of launching and growing your startup.  Get a good line of credit and a business loan, which will allow you to purchase cover yourself until you can make a profit.  

Giving away too much equity: Nothing is inherently wrong with offering investors an equity stake in return for their funding, yet giving away too much equity can cause problems.  Even if you offer it up in small amounts, you’re still giving away control, which can result in chaos if it’s spread out over multiple investors who can’t agree about what needs to be done.  You may also find yourself with a startup over which you have very little control.  

Building your team on friendship: Starting a business and making money with all your buddies by your side is a great fantasy, but it’s far from the reality.  Navigating dispute when dealing with your friends is hard, and can be challenging when you need to define roles and responsibilities.  

Not getting enough investment funding: Many startups struggle because their teams can only get enough funding to get started.  They don’t take any potential roadblocks into consideration, meaning that they’re scrambling to find the necessary funds.