Home Business Startup Mistakes To Avoid For New Founders

Startup Mistakes To Avoid For New Founders

by Olufisayo
Startup Mistakes To Avoid

According to Forbes, nine out of ten startups fail. As an entrepreneur, don’t be discouraged by these statistics. Instead, you can learn from some of the mistakes others have made before you.

Start by avoiding pitfalls that many startup founders fall into. In order to help you, we have listed six common startup mistakes that new founders make when running a company.

Skipping market research

Market research is a crucial part of building your product to fit the needs of the market. Many entrepreneurs are so focused on product development, they do not allocate enough time for market research.

Reviewing the market to better understand the needs of your target audience is crucial, and more often than not, a startup will fail because of its lack of market knowledge. A study showed that 42% of failed startups identified the “lack of a market need for their product” as the primary reason for their failure.

Do not underestimate the importance of market research as it’s the simplest way to keep up with industry trends and the needs and wants of consumers. Ask yourself: “Is anyone else doing what I want to do?” “Am I able to deliver a product that people want?” “How can I differentiate myself from the competition?”

       

Having a greater understanding of your market from the start will allow you to build a strong brand while gaining a competitive advantage. Research can be carried out during different stages of the product life cycle. Whether you are conducting qualitative or quantitative analysis, market research is a powerful business tool that provides insightful views of your marketplace.

Spending too much money

As an entrepreneur, you can expect to spend a lot of money on the set up of your company. However, be aware of spending money on futile expenses. It sounds obvious, but being able to tell the difference between necessary and impractical expenses will determine the success of your business.

For example, some startups may think it important to spend a lot of money on subscription-based services like accounting software, marketing automation, and CRM systems. These services may increase your productivity and overall efficiency, but they can be expensive and not necessary at an early stage.

Likewise, startup founders are often tempted to purchase expensive office equipment. As a rule of thumb, don’t spend money on expensive equipment unless you need it and are more likely to see ROI because of it.

Moreover, when it comes to finding a space to work in, renting offices can be very costly as well. If you are just getting started, it will be more cost-effective for you to work from home or rent a desk or a few desks from a company that has excess space.

       

Then, as your business is expanding, you may consider coworking before moving on to getting a space of your own. Furthermore, think about how much time you should allocate time to creating your brand, building your product, and acquiring.

Refrain from spending money on promotional items like t-shirts, hats, and coffee cups. Goodies may be appropriate or convenient at some point, but they don’t bring any value to your business in the beginning.

Raising money too soon

Founders will often think their main problem is a lack of funds. Whenever you are starting a business venture, you will inevitably make mistakes. If your investment is not huge, those mistakes will not crush you.

However, if you have put in a lot of money, or raised money too early on in the process, a single mistake can have severe consequences for your business. Raising money should not be your first priority. Investors and venture capitalists will have high expectations when it comes to funding.

They might be willing to fund your business, but they are very selective and will require an in-depth analysis of your business plan, your profits, and your forecasted growth. In addition to that, VCs are generally looking for a return anywhere from 3-10 times their initial investment, usually within the next 5-7 years, so you may need to expand your funding options.

       

The majority of entrepreneurs begin with “bootstrapping,” which involves investing personal funds into your business. However, think through how much of your personal funds you want to invest and how long that money will last you.

Asking your friends and your family for backing might sound intimidating but generally is one of the most accessible options early on in setting up your business. And it can never hurt to ask.

Other options include crowdfunding platforms such as Kickstarter and Indiegogo, which are alternatives that you shouldn’t neglect to look into. If bootstrapping, friends, family, and crowdfunding aren’t enough, you can also consider angel investors.

Making wrong hiring decisions

When it comes to building a team of employees to help your company grow, many entrepreneurs don’t know when it’s the right time to start hiring or what people to add to the team. If you are the sole founder or are a part of a very small team, it is easy to feel overwhelmed or protective over the work you’ve put into your venture.

Before you start thinking about hiring someone so that you can continue focusing on growing your business, you should ask yourself: Do you have enough money and resources to afford annual salaries and benefits for a full-time person? 70–80% of the costs of most startups are employee costs, so if you aren’t sure yet, don’t take the risk.

       

If you still feel like you could use extra brains and people resources, consider reducing costs by hiring flexible people that won’t be a burden. Freelancers, contract employees, and interns may be the way to go while you are developing your business.

Marketing to everyone

Another mistake that startup founders make is deciding to market their product or service to everyone. Even if you think your product or service appeals to everyone, you should be more specific and focus on targeting a particular audience. User personas are an excellent way to narrow your target audience and identify the right customers for your business.

Personas are fictional characters that represent your target audience and whose needs your product or service will satisfy completely. If you try to attract too broad of an audience, your message will likely come across as vague and less impressive.

Focus on factors such as demographics (age, income, gender) but also the type of people (psychographics), including their attitudes, behavior, and preferences. The more specific you are about your target audience, the more likely you are to reach them on an emotional level.

Disregarding Profitability

A common challenge for startup entrepreneurs is finding the balance between profit and growth. Should you keep your earnings or reinvest them into growing your business? Over the last few years, a culture has emerged in the startup world where rapid expansion is valued above all else.

       

Founders spend more time and energy on achieving hypergrowth instead of building a strong product and a business model that is profitable in the long run. You can either decide to spend a lot of money to achieve growth quickly, or you can focus on revenue and taking things slowly and cautiously.

There will be times when your business should focus on one rather than the other, and success will depend on what your vision is and what your goals for the future are. Venture capital isn’t necessarily right for all businesses, but if you seek funding, you were probably told that VCs care more about growth than profits.

This is true, however the investor community is shifting toward more realistic forecasts. VCs want to invest in founders who dream big, but at the same time, they are becoming more skeptical of extravagant predictions. Therefore, presenting realistic expectations and aiming at profitability is increasingly important in pitching to investors.

Don’t forget that while it is essential to avoid catastrophic business errors that could lead to the failure of your business, making mistakes is all part of the startup journey. It is how you identify and resolve the errors that will ultimately result in the making or breaking of your company.

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