Startups are booming in the current scenario of technical advancement and in recent years we have seen a new startup arising from the dust. We have seen a new startup evolving every day and most entrepreneurs think they’re building the next big thing. But in reality, over 90% of them fail. Most startups follow this lifecycle, where the founder gets an idea, a revolutionary solution that is unique and can solve a lot of existing problems. Then he builds a solution on its own or with help of a small team and then tries to sell it but nobody buys it. Ultimately the founder runs out of money and the startup dies. That’s the story of every 8 out of 10 startups, but what is it that these startups have such low success rate? There is something seriously wrong with the concept of a “Startup”, or maybe not and it’s just the novice execution?
Mistake 1: Focus only on building and not on the customers
The solution that you are building should have only one goal, that is to solve a meaningful problem FOR OTHER PEOPLE. This is crucial because 42% of startups fail because they didn’t solve a market need. They failed because they didn’t put others first.
One of the top-tier entrepreneurial masterminds, Steve Blank, has developed a method to increase the success rate of startups. He calls it customer development. The principles of his method are:
- There are no facts inside the building. You need to talk to users as much as you can to move forward, even if that means doing things that don’t scale.
- No business was built on nice-to-have features. The most important thing is to make your customer more successful by solving their biggest struggles, challenges, and frustrations. Something nice-to-have won’t lead to a big business.
- No plan survives its first contact with the market. So don’t spend months drawing them up. Take 5 minutes to put your ideas on a business model canvas, and go test them.
The only way you’ll be able to grow your startup is by combining building with user research. By embracing feedback, you open yourself up to enormous success you’ve never seen before.
Mistake 2: Lack of focus
This one is really easy. If you find yourself doing one of these things without knowing they’re going to move the needle, STOP!
Basically, the only two things you need to focus on when you’re in the startup phase is users and the final product. The only way to stay on track as a startup is to develop the product and talk to users. You just don’t have time to get caught up in other things.
Mistake 3: Being a One-Man Army
There are three essentials things to create a good startup- Good people, Make something customers actually want and spend as little money as possible.
My advice to each (would-be) founder is this: find AT LEAST one person from a different discipline to join you. Ideally, you have a combination of people that covers the holy startup triangle: hipster, hacker, hustler (aka designer, engineer, marketer). Because if you’re with good people from the start, making something your customers actually want becomes 100X easier.
Mistake 4: Premature scaling
Premature scaling is putting the cart before the proverbial horse. The more a company grows, the further away from profitability it becomes. This one is tricky because it seems you’re doing everything right. You’re scaling, you’re hiring, you’re funded, you’re growing. However, they are out of order, and their impact is huge. According to the Startup Genome Project, up to 70% of startups scale up too early. They even go as far as saying it can explain up to 90% of failed startups. The main goal of a startup is to not be a startup anymore. This means 1) getting to a good product for a good market, and 2) knowing how you can consistently acquire new customers for less money than the revenue they bring in.
This comes down to a couple of stages with different focus.
First: Problem-Solution Fit. The first phase is about figuring out who your primary customer is, what problem they want you to solve and how you’re going to monetize on this customer. This means that you a) find a problem that is big enough, b) for enough people and c) where they will pay you to solve their problem in whatever way. I explain how to do that in 7 steps here.
Second: Product-Market Fit. The second phase is about creating an in-demand product that services a large enough market for your startup to grow. This means you test, validate and determine the core features, and use product feedback to build next version to grow the amount of customers who will pay.
Third: Channel Fit. The third phase is about lowering acquisition costs and increasing revenue so you can reach profit. This means you optimize your conversion funnel and find ways to retain more customers.
Once you know that your cost to acquire a user will be lower than their lifetime value, you can step on the gas and scale up.