I’ve felt the pain of ultimate startup failure, and also the pain of an enduring struggle towards triumph. The latter is the most bearable of course, but it’s the former that has taught me the most lessons. To steal a quote by Mr. Ford, “failure is simply the opportunity to begin again, this time more intelligently.”
Let’s look at some of the most common startup failures gleaned from my experience, which will hopefully help you proceed smarter than you would have otherwise.
1. Investing in Engineering too Early
What’s the point of engineering a product (or solution) if there’s no genuine demand, no proven problem which it solves, and no clear route to user acquisition? We all have great ideas. An idea doesn’t see the light of day without action, of course. But this action should consist of establishing true product-market-fit, rather than busting a gut and blowing a budget on engineering the solution to a non-problem.
The long-term viability for a solution must be fully validated. In truth, a startup is unlikely to be funded by a suitable VC unless these steps are taken and a proven route to user acquisition and growth is evident. I see too many entrepreneurs destroy budget on engineers and designers before the concept is validated.
Takeaway: Focus on establishing a product-market-fit before investing in product engineering.
2. A poor team member fit
Whilst difficult to quantify and pinpoint as the sole cause, poor team-fit is often a significant contributing factor to startup demise in my experience. In a survey by CoFounder magazine and the tech blog ArcticStartup, 37% of founders cited their biggest challenge as building the right team. Team is not just about culture, which is understandably also critical, but it is also about ensuring there is the balance of required skills to enable success from the outset.
Often a core team member isn’t the right cultural fit, or perhaps isn’t experienced enough for a senior role in a fast growing funded business. The reasons this happens is due to:
- Founders relying too heavily on their existing network
- Lack of experience in recruiting knowhow
- Limited resources
Takeaway: Focus on attracting the right team that can not only help you build and market your technology, but that also complement each other’s skills. Be on the lookout for weaknesses and don’t hesitate to seek help and advice in forming your team if you have any doubts - this is not an area in which to cut corners. There is a reason incubators and investors place so much emphasis on understanding the team behind the idea.
3. Relying on referrals
Referrals is a credible supportive channel for customer acquisition, and these networks are certainly valuable. However, referrals cannot be relied on for the long-term impactful growth. Word of mouth is uniquely powerful, but a more active marketing acquisition strategy is required to maintain the growth curve.
Takeaway: Embrace referrals, but invest in longer-term customer acquisition channels and retention tactics such as inbound marketing and customer success management.
4. BURNING MONEY ON THE WRONG CHANNELS
I often see startups go ahead and burn cash on unproven acquisition channels. This is a classic issue, and (alongside my next point) is the most common problem I solve when consulting with a fast-growth startup. In many cases, unproven channels turn out to be the wrong channels.
As a growth consultant, I’m obsessed with iteratively testing different channels to determine a bespoke strategy. For instance, the overall trend might suggest Instagram advertising as popular among brands, but is it suitable for your audience and your goals? Let’s test. Will content marketing and SEO deliver the short-term fast growth that you need to reach the next funding stage? Probably not, let’s switch channels.
I’d say that most fast-paced startups benefit from using paid acquisition channels, but the exact balance of budgets between campaigns on different platforms needs to be tested. Every strategy is nuanced.
Below is a basic analysis I run through on a client before deciding on which channels to go for:
TypeGroupingImpact/RelevanceCommentsProgrammatic in appAdvertising3Can be cheaper but generally lower quality than FacebookApp store optimization (ASO)App discovery3FundamentalApp review sitesContent3Brand building & can generate trafficContent marketing – content distributionContent3Expensive and on-goingFacebook advertisingAdvertising3Strong targetingDisplay remarketingAdvertising3Cost effectiveSEOSearch marketing1Same as PPCPay per clickSearch marketing1Requires exploration but probably no to low relevant search volumeEmailEmail2Requires great contentContent marketing – blogContent2Builds authority / helps conversion / slowAdvertorialsAdvertising1CostlyPress releasesPR2Brand buildingLinkedIn advertisingAdvertising1Too B2B focusedPaid placementsAdvertising2Brand buildingForumsSocial1Covered by SEO work / limited number of sitesTwitter accountSocial1Too B2B focusedPaid reviewsAdvertising1Not many relevant sites availableLinkedIn groupSocial1Too B2B focusedFacebook pageSocial1Requires great contentInfluencer outreachSocial1Expensive & fragmented market / effectiveness uncertainAffiliatesPartners1Not many relevant sites available
Takeaway: Generate a testing methodology, split your budget sensibly, and double-down on the most effective customer acquisition channels once they’re proven.
5. BAD TRACKING SETUPS
How can you measure performance when the tracking is not correctly set up in the first place? Unfortunately the devil lurks in the deep far depths of the detail (usually somewhere in Google Analytics) when it comes to tracking key statistics. Whether it’s on GA or any other measurement channel, I regularly see this problem at early-stage startups and corporates alike.
Another issue is not focusing on the business outcomes that you want to impact through data. In a study by Mu Sigma, 74% of senior-level decision makers confirmed they’re often limited to the data they have available to them, rather than planning around the business outcomes they have in mind, when it comes to problem-solving.
Takeaway: Hire a specialist to set up technical tracking which is aligned with your business goals and growth ambitions. Create an integrated strategy which syncs expectations with tracking the right KPIs.
6. Infrastructure and scaling too soon
In a nutshell, this consists of getting too excited about the end result. This approach means that startups fail to focus on the most acutely critical areas. Business infrastructure consists of systems, processes, and tools. These elements should, of course, be robust and able to withstand business growth. It’s important to get these in place to minimise growing pains, but this shouldn’t be something which distracts from the foundational ambitions; validating the solution, testing strategies, and gaining traction.
Growing pains are inevitable, and always occur to some extent. By thinking too far ahead in terms of scalability, you risk investing budget which could be spent better on other areas at that particular time.
Takeaway: Plan for how your infrastructure will grow with your startup, but don’t preempt issues to the point of irresponsible advance investment. Keep an eye on the long-term, but don’t be distracted and invest too heavily burning resources too quickly by taking on too much.
7. NOT SETTING UP MUTUALLY BENEFICIAL DEALS
Growing a startup requires a broad-minded approach, and that extends to your dealings with external suppliers. Early-stage businesses need to set up commercial deals in mutually beneficial ways, which presents an incentive for both parties to succeed. But what does this sort of deal look like?
Ideally you structure commercial agreements with providers to align interests. This can be vesting equity tied to agreed objectives, outcome or project-based bonuses or some form of alignment of interest that isn’t time-based or fixed retainer based. The core reason this usually doesn’t happen is lack of trust on behalf of one or both parties.
The mistakes I see with agencies or freelancers are:
- Lack of clarity over clear deliverables
- Poor project management in terms of timeframes
- Ambiguity over client expectations and agency experience
- Taking on far too much work than is feasible
- A lack of deep delving into the particular client’s industry
Takeaway: Ideally you want to shift your thinking from providers to partners, and rather than ensuring you’re paying “market rate” you should focus on aligning commercial interests to maximise the motivation of your selected partner(s).
8. Blurred expectancies
Most startup founders (and the core team) are naturally ambitious people. From a creative point of view, blue sky thinking can yield incredible ideas. From a business leadership perspective, there must be more structure and full alignment within the company in terms of objectives, KPIs, and the ultimate end goals.
Ambition is necessary and should be lauded, but when let off the leash, over-ambition can be damaging to a startup. Without clarity on goals and objectives or agreement on KPIs, the team is launching into the aether of the unknown, half-guessing what’s expected of them and what constitutes success. Transparency is critical for everyone, from internal executives, to consultants, to the investors and VCs.
I recently had a meeting with a top VC, together with one of my clients who’d raised a hefty seed round. The investors said several times that it’s critical to show working prototypes and traction as soon as possible. The startup was busy hiring lots of engineers to build the product and fulfil the founding team’s vision. The expectations of the VC were different than the core startup team, and without a super clear plan, it’s hard to align.
Takeaway: Define what success means, determine how to measure the pursuit of that success, and communicate individual and collective KPIs to internal team members and external partners.
9. Getting stuck in the mud
I often see startups burn too much money on the wrong providers and remain tied into contracts with unsuitable systems vendors. This is often down to the hustle and D.I.Y approach common to very early stage startups. Money may be tight and there is a ‘needs-must’ approach to building tech stacks and choosing partners.
However, things can get tricky further down the line when you’ve gained initial traction, acquired funding and now have heavy weight growth expectations of investors to meet. For example, at this point the cobbled-together nature of marketing tech stack unsuited to growth, will become painfully obvious.
It’s also common for startups to get stuck with an equity-holding partner who no longer provides value, which potentially blocks the ability to raise additional funds for growth. Should this happen efforts must be made where possible for an amicable extrication from the agreement.
Of course hindsight is a wonderful thing and as Arthur Conan Doyle once said, “It is easy to be wise after the event.” Foreseeing problems with equity partners and system vendors who may one day end up being a barrier for growth is not always possible.
Takeaway: Put as much careful consideration and forward-planning as you can into the longer-term partnerships that you enter into. Seeking advice, whether external consultation or mentorship can be extremely valuable.
10. INEXPERIENCE IN THE MARKET
A startup is most likely to succeed when its founders and core team has direct experience in the market and understands the specific nuances of an audience. This enables leaders to see the solution in context and spot opportunities. A lack of prior experience leads to many mistakes, firstly with establishing the validity of a solution in itself, but thereafter in targeting the right customer acquisition channels in the most effective way. To solve a problem, one needs to understand the problem and its surrounding situation.
John Rampton - the highly influential investor and business leader - used an Entrepreneur article to list the reasons why he wouldn’t invest in a startup. Inexperience in the market came in at number 21;
“As an entrepreneur, you don't seem to be familiar with the business sector involved so I'm not interested in investing in your startup. If you had experience in a related area, that would at least inform me that you have some knowledge relevant to potential customers or an inkling about how to enhance the industry.”
Takeaway: Work on a solution which pertains to your experience and expertise. Failing that, seek regular specialist insight from industry insiders. Hire people with experience. Maintain a customer-centric approach from the very start to ensure that product iterations solve valid problems. Listen, learn, and act on qualitative and quantitative data insights.
Summary
Failure is inevitable when you’re taking so many risks. The vast majority of startups fail, and to compare your venture to Uber, Facebook, or Snapchat is to use the wrong yardstick. These are one in a million, and operate in another stratosphere. But by establishing a proven product-market-fit and scaling customer acquisition effectively, you have a better chance of fast growth and long-term scalability.
Even successful startups make countless mistakes along the way, and indeed it’s the endless pursuit of perfection and risk-mitigation which stifles growth. The fear of failure should not induce paralysis. Instead, sustainable growth is provided by the application of methodologies and the framing of ambitions within measurable KPIs.