Startups are hard. Most first time founders fail. Sometimes the mistakes made are recoverable; other times they will sink the company. I have compiled a list of common fatal mistakes and how to recover from them swiftly without costing the fate of the company.
1. Lack of Focus
When a company sets out to build a product, there is a tendency to build a variety of features at once or even a few different products in the hope that one will resonate. While diversifying might not sound like a bad idea, it is initially detrimental. A lack of focus can kill your company - it is difficult enough to do one thing very well much less many.
Instead, put all of the resources and manpower behind perfecting one simple, core product that will engage users and drive downloads/usage. Talk to as many potential customers, users, clients, partners, as possible before choosing which one to expand upon, and make sure there is demand before honing in those efforts (I touch upon this under mistake #4).
"Strip away the unnecessary and remember to stay focused."
Great companies also remove features or discontinue products to stay hyper-focused on what is important. For example, Apple maintains a very focused approach with its computer products, ensuring that only a few possible hardware products exist at all times. Instead of branching out into several types of desktops and laptops, they keep it streamlined and focused.
One startup that comes to mind that recently stripped away features or products, is my former employer Aviary. Aviary was originally a destination website for heavy flash Photoshop and GarageBand-like tools. When Aviary launched a web and mobile API for companies to plug in lightweight photo editing tools it quickly went from no users (using their API) to 50M MAU in a less than 2 years. Aviary discontinued development on their destination website and eventually shut it down in September 2012. This allowed them to focus 100% of their attention on the thriving mobile and web API business.
All in all, less is sometimes more. Strip away the unnecessary and remember to stay focused.
2. Hiring The Wrong People
There is only a short window in which one can win at a startup, so hiring the wrong person for a key position can set a company back several months of productivity and be a detrimental financial investment. If a company only raises enough money to run for 12-18 months, then that time is meaningful and critical. Not only are there milestones necessary to hit in the first 12-14 months, but without those, another round of funding cannot be secured. If a poor hiring decision is made, this could lead to raising money at a lower-than-expected value or even a down round.
In the startup community, the mantra is frequently to hire fast and fire fast. Holding onto bad talent can be a waste to the company and a parasite for precious resources, and it’s important to remember that people can be let go despite any institutional knowledge.
I’ve seen my share of hiring the wrong people for startups. Sometimes it is a corporate move to startup, other time it’s a bad culture fit. Whatever the reason is, and while firing is one of the hardest things to do (if you have a soul), you need to think about all the other people you will need to let go (when you fail) because you couldn’t terminate this one employee.
3. Bringing On The Wrong Investors
"When considering taking money from an investor, it is critical to look for two salient qualities: they should be trustworthy and knowledgeable."
It is really exhilarating when someone wants to give you money to work on your business. But is it the right investor to help you take the company to the next level? Try to be honest and genuinely answer the question. I’ve spoken to many founders who have taken the first check offered to them at terms that had varying degrees of favorability. Most of these stories end poorly for the founder of the company, who didn’t understand or realize what they had gotten themselves into and risked everything.
When considering taking money from an investor, it is critical to look for two salient qualities: they should be trustworthy and knowledgeable. They should be guiding the company toward greatness with experience and strategic insight. While it is difficult to turn down a check from anyone, it is for the betterment of the company to find the right investors rather than the first investors.
4. Not Listening To Market Needs
I spoke about #4 earlier, but one of the most important mistakes startups make is not listening to what users/clients/partners actually want. As a startup you have a product and you begin to receive feedback. Some of the feedback is noise, while other feedback needs to be listened to as it will determine whether or not you will have a successful business. While it is impossible to know everything when you first release your product/service/offering, feedback is important and will help you perfect your business.
So how do you figure out which feedback is noise and which is what you need to follow? I have two rules I follow:
The first is that you usually can figure this out by hearing enough of the good feedback from active users/clients/partners. I would listen to one active user/client/partner over ten non-active users/clients/partners.
The second is if you hear the same thing repeatedly from many different sources. Sometimes, founders who are in the thick of things overlook the most obvious market needs. If you keep hearing the same feedback from friends, acquaintances, or your grandmother, then I would jump on that. Listen, understand, and execute.
5. Lack of Urgency
Out of all of the issues this is probably the most fixable. Some urgency is real, other times it is created. Either way, startups don’t have time to be complacent and move slowly.
When dealing with true urgency, it typically sets in when you have a finite amount of time to do something. Urgency can come from having only a 6 months of money left in the bank and you need to hit key metrics within 3 months so you can go out and raise money to keep the company going. This could also be that you are competing for a deal and the partner is making a decision in a finite number of days. In all cases that involve a sense of urgency, either the team can rally together and achieve greatness, or fail.
"Surround yourself with mentors that have done it before and can give you advice on how to avoid mistakes."
Sometimes a startup gets complacent and isn’t pushing themselves the way startups should – this is where fabricated urgency comes in. I’ve seen many companies combat complacency by having "crunch time." Crunch time is a 4-6 week period of all-company-all-the-time. You say goodbye to loved ones, family, children, pets, and friends, and go all-in. The company covers meals and general expenses, but it also means that you don’t have a life outside of your company for a large chunk of time. Once you accomplish this crunch time goal, professional life resumes as normal. I’ve seen some great results from it (i.e. products getting shipped much earlier, partners coming on board more quickly, etc.), but it also drains the stamina of the employees significantly - so there is a trade-off.
These are only five mistakes to avoid, but there are a million more reasons why a startup could fail. The best thing to do as a startup founder is to surround yourself with mentors that have done it before and can give you advice on how to avoid mistakes. There is no exact science or playbook to creating a successful company but at least by surrounding yourself with people who have been through the thick of things, they can tell you what not to do when the time comes.
Alex Taub leads Business Development and Partnerships at Dwolla, a payments startup based in Iowa. He previously led business development and partnerships for Aviary, a NY startup that provides a photo editing API for web and mobile devices. He’s on the board of NY Venture Community (NYVC), started the Digital Learning Series with Startl, a NextNY Fellow, and advises early-stage technology companies. Featured in Business Insider as one of the “Top 20 Under 25” in the NY tech scene, he also writes a popular blog called Alex’s Tech Thoughts, has published articles in The New York Observer and VentureBeat, taught classes on business development and partnerships, and has been quoted on many tech websites including TechCrunch, Fast Company, The New York Times, Business Insider, Mashable, and PC Magazine. You can reach him at Ataub24(at)gmail(dot)com or follow him on twitter, @ajt.