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Startup Mistakes, Lessons from Failed Startups

Which mistakes were the common project killers?

  • Marketing mistakes were by far the most common, and they were generally speaking the most deadly with 69% of all mentioned marketing mistakes being fatal. In fact, the fatal marketing mistakes were more numerous than all other fatal mistakes combined (56% vs 44%), as can be seen in the pie chart below. By far the most common reason for shutdown was lack of product-market-fit which constituted more than half of the marketing mistakes, but more on that below.
  • Team problems – friction, lack of experience, lack of motivation, etc., were the second most common. They were some of the least-deadly percentage-wise (only 39% of all mentioned team problems being fatal), but because they are abundant they were still the second most common reason for shutdown.
  • Financial problems and mistakes were the third most common. That said, bearing in mind more than 50% of the projects didn’t have any budget to begin with and more than 75% of the projects were self-funded, it’s a surprise that only 16% of the projects point at financial problems as the major reason for failure.
  • Tech problems were extremely rare, which is surprising considering almost all projects in the data have a technical side to them. The most common remark was that too much time and effort was spent on tech that proved to be useless in the long run. The most common answer to “a thing you would do differently next time” by far was “I’d talk to customers and validate my assumptions before writing a single line of code”. That said, a big % of tech problems were fatal: e.g. relying on a 3rd party API that changes can ruin a business overnight.
  • Operational problems were quite rare and not that deadly, but it’s important to mention that most interviewees ran software projects, so operational problems (e.g. suppliers, distribution) are not as common as in brick-and-mortar and physical product projects by definition.
  • Legal problems were rarest, mentioned only four times, but two of those four proved to be lethal. For most early-stage startups the legal side is a non-factor. Yet, there are still industries where you can’t afford to ignore it (food, finance, etc.).

Common Marketing Problems

As mentioned, marketing problems were both the most abundant and the most deadly. 46 out of 83 startups mentioned a marketing problem as the main reason for the failure of the project.

Product-market fit: 29 out of these 46 were talking about what boils down to lack of product-market fit. 29 out of the 83 projects essentially created something that they later found out no one needed. Unsurprisingly, the most commonly mentioned lesson by far was that you need to validate if the market actually needs what you are offering. Ideally, you need to do it before you invest any considerable amount of effort, time, or capital into the project.

Competition was the second most common marketing problem, but while it was mentioned by 8 startups, it was singled out as the reason for failure only twice (25% fatality rate). 2 out of 83 is quite low, but this doesn’t come as a big surprise. Startup projects are by definition at least partially innovative, and this innovation serves as a form of differentiation. Competition becomes a factor much later in the startup journey, and some form of competition early on is even a good sign: third-party validation that there is demand for something close to what you are offering.

Value-added: this was a rare mention (two times mentioned, both fatal), but it relates to competition. A common “competitor” of an innovative startup is the current most popular solution to the problem the project is trying to address. This doesn’t even have to be another company – it could be whatever people are currently doing to solve it. If your product/service doesn’t add enough value, people will simply stick to their current solution.

User retention: again, related to the point above. If your product/service is something cool and shiny, it is likely to attract visitors. But unless it provides real value (solves a problem), you will lose your audience right away – your marketing efforts are simply wasted.

Market size: even though startup investors very commonly talk about market size, this is because they are chasing Unicorns, not lifestyle businesses. As a founder, however, a working lifestyle business is not a bad thing to have. A small market was mentioned only once as the reason for failure. In reality, even small niche markets are usually enough to sustain at least a single company (thanks to the internet).

Lack of focus isthe last marketing mistake worth mentioning. Often startups have a vision of some grand platform with amazing capabilities and features addressing multiple problems at once. In reality, however, as a startup you simply don’t have the resources to build so much complexity. Even if you do, it’s very likely to turn out most of the features you are envisioning aren’t needed in the first place. A startup is much more likely to succeed if it’s hyper-focused in as many ways as possible. First of all, focused on solving very well a single, well-defined problem for a single, well-defined market. Second, focused in terms of technology (one simple, lean solution) and third – marketing (a single channel that works).

Common Finance Problems

An early-stage startup doesn’t need money, it needs time and effort.

Of course, this is an exaggeration, but it’s closer to the truth than you’d think.

The typical expensive thing in most startups is the dev time. Yet, expensive technology is only important to scale something up and automate it, not to test it. To validate a concept, you can often use no-code (or low code) solutions combined with some manual effort (e.g. a no-code/low-code website and a dude with an excel sheet and an email).

This, of course, is applicable only early on in the life of the startup when you have few clients/users. But going this route will protect you from losing time and money on the wrong thing.

Funding: That’s the main reason that even though 77% of the interviewee projects were bootstrapped and around 50% didn’t have any funding, only 2 out of 83 projects pointed at “lack of sufficient funding” as the reason for the failure of the project. In many cases, the founders understood that if they had a bigger budget, they’d simply lose more money. Funding is only important when the startup starts graduating into a real business and needs to grow, and even then only when it’s going the rapping growth rather than sustainable growth (lifestyle business) route. (The disclaimer here is that you shouldn’t mistake a startup with a new but traditional business, which usually requires initial funding.)

Monetization: the most common financial problem is monetization, and arguably monetization is more of a marketing/business plan issue rather than a financial one. Figuring out how you’re going to make money from the thing you have is a good idea. If no one is willing to pay, you have a problem. That’s one of the reasons why B2B projects are often less risky than B2C projects.

Profit margins were also mentioned as a problem from 5 businesses, 3 of which pointed at it as fatal. This is very dependent on the type of business and the market saturation. E.g. in food startups you are competing with a lot of traditional solutions, where profit margins are razor-thin, which is an unfavorable environment for a non-optimized innovative solution.

Overspending and cashflow are the two most important problems you need to keep in mind when it comes to finances for startups, especially once you start making money. Over-hiring too early is generally speaking a big mistake and could easily ruin an otherwise very promising business. Early in the life of the company, it’s important to keep the overheads as low as possible (founder living expenses + servers). You can outsource anything else you need (freelancers, agencies). This gives you the flexibility to cut back on spending almost instantly if you suddenly hit a bump and keep the business alive, giving you more time to iterate and solve the problems.

Common Team Problems

Experience: lack of it is one of the most common problems in startups. 20 out of the 83 interviewees mentioned it, 9 pointed at it as the major reason for failure. Usually, lack of experience means a couple of different things, however:

  1. Lack of domain knowledge: You need to know well the market you’re targeting. If you don’t, it’s your first order of business to talk to potential customers and rapidly learn about it before you build anything. Almost always fatal if you don’t. 
  2. Lack of marketing knowledge: How to reach your customers, keep them engaged, grow the business. A very common cause of failure for tech-only founder teams. A good marketer is absolutely vital for a startup and one of the founders needs to take this role early on.
  3. Lack of technical knowledge: If you have a technical product, it’s a no-brainer that you need a good technical person. If you don’t, you’ll simply fail to build a good product. That said, early in the life of a startup keeping the tech side as lean and agile as possible is vital. 
  4. Lack of business knowledge: Bad business/startup decisions can easily invalidate all your efforts and ruin the business, but this is easiest to overcome. This problem is solvable by taking on a mentor or at least learning from the mistakes of others from resources like the one you’re reading.

Friction: the second most common team problem (9 mentions), but fatal only 2 times. That said, even if it’s not fatal, it makes things much more difficult than they have to be. Some people recommend not to start a business with a person before you know them well enough and before you know you share the same vision. Otherwise, you’ll pull the project in different directions.

Motivation: the quote from Naval Ravikant from above doesn’t simply mean that the founders need to know their market and product well. It also means that they need to be excited about working on the problem, or lack of motivation could mean the slow death of the project (mentioned 6 times, fatal twice).

Availability: working on a startup requires a lot of time and effort, and if the founders don’t have it it’s very hard to make progress in good time. The big common mistake here is when the founders have different levels of availability (e.g. one founder works on the startup full-time, the other part-time). This naturally leads to friction and loss of motivation.

Common Tech Problems

If the most valuable marketing concept for a startup is “validation”, the most valuable technical concept is MVP (minimal viable product). You need to create a product that allows you to find a market with the absolute bare minimum time and effort investment.

Often the right solution is to take this concept to absolute extremes. If your grand vision is about a platform with 50 features solving 5 problems, the MVP is NOT a platform with 25 features. It’s probably not even a platform, but a static website imitating the 2-3 most important features (with cheats like manual labor) and allowing you to test them and see how customers like them.

As mentioned in the findings at the top of the article, the most common and fatal tech mistake isn’t even connected to tech: it’s over-investing your time and effort into building something cool before making sure someone needs it.

Tech people love to build stuff, they don’t love to sell stuff. And initially, you usually need to do 10% building and 90% talking to customers and selling. Later on, it becomes 50% building and 50% selling. But it never, under no circumstances becomes 90% building and 10% selling, because this is when you lose your connection with reality and as a result – you waste your time and efforts.

As for real tech mistakes, the most commonly fatal ones are:

  1. You lack the skill and experience to do the complicated technical thing you are aiming to do. The solution is to bring in someone more experienced, simplifying the thing you’re trying to build.
  2. You are tied to a tech solution outside of your control: e.g. you have a business relying on Instagram’s API. If Instagram changes its API, this will lead to the death of your business. This, however, is a risk that is often worth taking, but you should still account for it in your plans.

Common Operations & Legal Problems

Operational problems were relatively rare (mentioned 9 times in total, only two fatal) and too case-specific to generalize. However, the disclaimer here is that most of the interviewees were running a software business, which means that operational problems are rare by definition.

Legal problems were also very rare, but when they appeared they were often deadly. 

Operational and legal considerations are very industry and location-specific, so make sure not to follow general advice before doing some case-specific research

Common Lessons

All startups were asked “what would you do differently”, and even though there are a lot of case-specific lessons, one them was repeated over and over: lean startup as a concept was mentioned by 27 of the startups as the most important lesson learned the hard way. This means approximately one-third of all interviewed 

Lean: validation – talk to customers, test your assumptions, and find a market before you invest a considerable amount of time, effort, and money into an idea. Mentioned directly 20 times.

Lean: MVP – build your prototype (the thing you’d use to test the market) as quickly and cheaply as possible. Iterate often. Mentioned directly 14 times.

And here are a couple of other lessons that get repeated more than once:

Risk: startups are very risky. Investors diversify by investing in multiple startups, but as a founder you don’t have that luxury. This means that you are very, very likely to fail. Make sure you can bear that failure financially, psychologically, etc. E.g. financing a startup idea with a loan is generally speaking a terrible idea.

Personal wellbeing: a business is not a good cause for martyrdom. Being a startup founder by definition means things would be very rough professionally for a long time period. Make sure that outside of the professional realm you are doing OK.

Team and experience: make sure your team ticks the right boxes. If you are a builder, not a marketer, make sure there is a co-founder who will do the marketing tasks well and the other way around. The cliché is that a successful startup team needs a hustler (marketer), a hacker (builder), and a hipster. I don’t know about the hipster, but you will certainly fail without the hustler or hacker, and it’s very hard to be both. A startup team also needs at least some experience running a risky project. If you don’t have any, getting a mentor is a great idea.

Failure is not the end: you’d be surprised how much of the interviewed failed startup founders are currently running another at least somewhat successful venture. Another chunk found a good job because of the skills acquired in the project. With every failed attempt, your competence and chances of success increase.

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