90% of all startups fail to scale, meaning the survival percentage of new startups rising on the market is less than 10%. US marketing agency Factl examined 200 failed startups to assess the main reasons of their collapse. Poor traction, weak business model, lack of sufficient funds, and lack of interest from investors were among the main causes for failure.
Given that breaking through the startup world is challenging, do you think it’s worth taking a risk? As an enthusiastic entrepreneur you most likely believe have faith in your new business. Have you ever thought that after investing all that time and effort developing an MVP, going to meetings, putting together a team, and pitching to investors, it might not work?
Pursuing the dream to turn an idea into a full-blown business is paved with unexpected events. In most cases, early-stage warning signs of startup failure are almost invisible. How do you survive? Believe it or not, it’s not really a matter of surviving, but a matter of failing healthily.
As painful as it may sound, you shouldn’t get too attached to your business. Don’t move forward after realizing that you’ve hit a wall. Read on to find out more about early-stage warning signs of startup failure and the tips to get back on your feet.
Startups don’t fail on ideas, whether good or bad. They fail because they can’t execute. Yet, as a new business with a vision to take the startup world by storm, you might be tempted to focus on ideas or high concepts too much. Instead, you should be centering your time and energy on transforming a business plan into a thriving company. Why aren’t ideas the backbone of my startup? Because you can only learn your lesson and evolve by tweaking them. This is where perseverance comes even.
Spotting the potential, role and drawbacks of raising funds is fundamental to startup success. Unless you take early action, your chances of failing are pretty high. Execution is key and if you don’t act, you won’t be able to spot the potential of your startup.
What to do: make decisions fast and learn to adapt to the rapid changes of the market. If technological aspects change and you don’t deploy, your competition may come in to steal your show. Get ahead by implementing ideas, whether good or bad. What’s the worst thing that can happen? You learn, you improve, you move on equipped with valuable lessons.
Poor or no marketing at all
It’s not good enough to have a top-notch product or provide a market-appealing service; you have to let the world get a taste of it. If you don’t do it and choose to remain in your comfort zone embracing ideas, eventually your whole startup will fail. It seems unfair, but usually an inferior product backed by great marketing can sell a lot more than the best product with little to no marketing.
Only the smartest startups spend more money on advertising than on crafting their actual product. It goes without saying that building a good MVP matters a lot; but even the best products fail to deliver on their promise because they can’t reach mass adoption. When it comes to advertising, the options are endless; and contrary to popular belief, it doesn’t cost you a fortune to make yourself, your business, and your product stand above the crowd.
Many startups fail because they put marketing and advertising on second place. They wrongfully assume that it’s more important to raise funds to continue product development than put what they have out there and raise awareness. At the end of the day, feedback from users and customers help your MVP fit to market .
What to do: Create, engage and collaborate with communities, and leverage the power of social media to reach to influencers, talk about your product even before launch. Excellent marketing is usually not about the money, but about time. If you want your startup to get traction, the secret is to put yourself out there. Develop a marketing strategy and if you don’t have the time to do so, hire someone to do it for you.
Operations costs are higher than your revenue
Imagine your startup breaks through the market. Your customers are fond of your product and you’re getting the traction you’ve always dreamed of. But what do you do if all the subscriptions or fees you charge can’t cover employees’ salary, let alone marketing and advertising? The first thing you might be tempted to do is to get the money from someplace else.
Regardless, what do you do if nothing changes? What if more and more people sign up for your service or product? Eventually, you end up in debt. You realize that operations costs are higher than your revenue and that you can’t pay your employees. This scenario happens quite often in the startup scenario where founders are excited about getting their product out there, but they ignore the consequences. Nothing can prepare you for what’s about to happen. Although it may kill you to let your business go, getting “burned” is not a pleasant outcome.
What to do: Be open to change. Whether it’s your business model that needs to be changed, your product/service, your approach, the idea or even the pricing, if you want your startup to survive, some things need to be done differently. Furthermore, it might be a good idea to cut back on operations costs, even if that often means letting some people go.
Not knowing how your customer are
It might seem cliche, but many startups fail to target the right people because they assume they know their customer base. Only a small percentage get their “buyer personas” right. Getting inside the mind of your audience is easier said than done, and figuring out what makes them resonate with your product is a universal challenge you need to overcome.
Understanding your customer is an in-depth process that many founders choose to ignore, or worse, can’t find a way to structure properly. Failure usually emerges because you live in an adrenaline-fueled, hyped-up, fast-pace startup world where time is never enough. Not knowing how your customers are but realizing you don’t know them is a clear sign of early-stage startup failure. Before moving forward with your MVP, you should answer yourself the following questions:
- What problems are my customers facing?
- Do they have any fears about trying out my product?
- What might these fears be?
Poor communication with customers, not listening to them, ignoring their feedback and criticism are signs you need to change your strategy. It doesn’t matter that you think your product or service is amazing, if they think it’s bad.
What to do: Know your people! Find a way to connect with them on a personal level. If you’re not out there on the streets getting to know them, your startup dream will eventually remain a dream. Make time to provide excellent customer support. Set-up communication channels across social media and your website, and monitor everything they’re saying - the good, the bad, and the ugly. Keep customers updated with changes you plan to implement and reply to negative feedback with a positive attitude.
Mismatch with co-founders and investors
Conflict damages partnerships and kills relationships. It’s not easy to maintain a good professional relationship with the people involved in your startup, let alone with co-founders and investors. Why? Because everyone has expectations. Startups fail to deliver on their promise when co-founders have different visions. While you want to focus on strengthening the team, your co-founder wants to focus on product development. So where does the money go?
In many cases, startup founders can’t find a way to reach common ground. While you’re busy battling your partners to prove you’re right, precious time is wasted. Instead, you should just let go. Unfortunately, letting go is easier said than done after you’ve dedicated years turning an idea into a business.
What to do: Rather than play the villain and enter a war, it’s healthier to look for remedies. To prevent early-stage startup failure, set up strong terms and conditions from the very beginning. It will help keep the relationship under control, whether it’s with employees, co-founders or angel investors.
Beyond every thriving startup is a successful, competent team. However, most entrepreneurs fail to realize on time that their team doesn’t deliver on their promise. How does an inexperienced team drive a startup into the ground?
- They’re not focused on building a strategy, but rather on building a product that nobody wants.
- They fail to validate ideas
- They can’t execute, which affects product development
- They lack leadership skills, which means they can’t build strong teams on their own
What to do: As the founder of the startup, you are their leader. It’s really important to be a good example for them, even if it means letting some people go. Before hiring people after reading their resume, put them on probation. Give them tests to assess their capabilities and suitability to your business model. Training everyone, including new and old staff members, is too important to ignore.
Remember Gandhi’s old saying: “First they ignore you. They they laugh at you. Then they fight you. Then you win.” From the outside, failure is tough to diagnose because most entrepreneurs are focused on building things people don’t realize they need (yet). When your aim is to build an empire, it’s natural to feel powerless at times; and believe you’re falling into a trap. From the outside, there’s no way of knowing you’re gonna win or fail.
Why is it so important to be prepared for failure even when you’re 99% sure your startup will hit the ground running? Because you can’t control everything, no matter how hard you try. A lot of entrepreneurs mistaken exposure with business growth. They’re too busy getting famous that they can’t hear that failure knocks gently on their door. The secret to success in today’s startup realm: notice the warning signs.
YOU MIGHT ALSO BE INTERESTED IN
SaaS Execution Map
We have condensed our experience and learning on more than 60 projects for global clients in developing this simple tool that increases the chances of a new digital product reach its objectives.