"For entrepreneurs -- especially those just starting
out -- businesses succeed as much as they fail. I’ve seen this time and again
as a mentor and entrepreneur. But statistics also suggest that the failure rate for new startups
within the first five years is as high as 50 percent.
Of course, real entrepreneurs treat
business failure as a milestone on the road to success. They count on learning
from their mistakes, and use the experience to move to the next idea. But why
not learn from the mistakes of others, without all the pain and suffering?
Here is my list of 10 top startup
failure causes -- and how to avoid them:
1.
No written plan. Don’t believe the myth that a business
plan isn’t worth the effort. The discipline of writing down a plan is the best
way to make sure you actually understand how to transform your idea into a
business.
2.
Slim or no revenue model. Even a non-profit has to generate
revenue (or donations) to offset operating costs. If your product is free, or
you lose money on every sale, it’s hard to make it up in volume. You may have
the solution to world hunger, but if your customers have no money, your
business won’t last long.
3.
Limited business opportunities. Not every good idea can become a
blockbuster business.
Just because you passionately believe that your product
or service is great, and everyone needs it, doesn’t mean that everyone will buy
it. There is no substitute for market research, written by domain experts, to
supplement your informal poll of friends and family.
4.
Can’t execute. When young entrepreneurs come to me
with that “million dollar idea,” I have to tell them that an idea alone is
really worth nothing. It’s all about the execution. If you’re not comfortable
making hard decisions and taking risks, you won’t do well in this role.
5.
Too much competition. Having no competitors is a red flag --
it may mean there’s no market -- but finding ten or more with a simple Google
search means your area of interest may be a crowded. Remember, sleeping giants
can wake up. So, don’t assume that Microsoft or Procter & Gamble are too
big and slow for you to worry about.
6.
No intellectual property. If you expect to seek investors, or you
expect to have a sustainable competitive advantage against giants in your
industry, you need to register for patents, trademarks and copyrights, as well
as enlist non-compete and non-disclosure agreements to protect trade secrets.
Intellectual property is also often the largest element of early-stage company
valuations for professional investors.
7.
An inexperienced team. In reality, investors fund people, not
ideas. They look for people with real experience in the business domain of the
startup, and people with real experience running a startup. If this is your
first time around, find a partner who has “been there and done that” to balance
your passion and bring experience to the team.
8.
Underestimating resource requirements. A major resource is cash funding, but
other resources, such as industry contacts and access to marketing channels may
be more important for certain products. Having too much cash, not managed
wisely, can be just as devastating as too little cash. Don’t quit your day job
until new revenue is flowing.
9.
Not enough marketing. Having a slick word-of-mouth marketing
strategy isn’t enough to make your product and brand visible in the relentless
onslaught of new media out there today. Even viral marketing costs real money
and time. Without effective and innovative marketing across the range of media,
you won’t have customers -- or a business.
10.
Giving in too early. In my experience, the most common cause
of startup failure is the entrepreneur just gets tired, gives up and shuts down
the company. Despite setbacks, many successful entrepreneurs like Steve Jobs
and Thomas Edison kept slugging away on their vision until they found success.
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