The Biggest Mistakes that Cause New Startups to Fail

sartup-business-failsRunning a startup may seem very glamorous on the outside, but those on the inside know that it’s hard work and success doesn’t come easy… for some, it doesn’t come at all.

Entrepreneurs face a number of different hurdles and obstacles along their way to creating a business from the ground up. Sometimes they make mistakes that help them learn how to handle business better in the future. And sometimes they make blunders which cost them the whole project.

Every business runs the risk of making mistakes that could end the whole journey and cause the entire enterprise to collapse.

The sad reality is that a majority of new businesses every year shut down due to some very common and highly risky mistakes. These are some of the worst…

  1. Single Founder

Ever seen a multi-million dollar successful enterprise run by a single person?

Even your local corner shop has more than one person running the show. Single founders are common in the very, very early stages of a business, but they’re sure to set alarm bells off in later stages.

That’s because people, especially investors, find it hard to trust a company where the founder is a one man band. It could be a sign that he/she doesn’t inspire confidence in others or that he/she has problems trusting other people and relinquishing some of the power.

There is also another problem – management. Managing a business, no matter how small, is not a one person job. There is no one to stop bad ideas, give new ones or support the founder during hard times. You don’t need a huge team to get off the ground, but you do need some backup if you hope to accomplish big things.

  1. Wrong Location

Some startups are ideally located just where they need to be. Others, unfortunately, are not.

People and companies prosper in certain areas more than others because of the simple rule of proximity. If a city is well known for a certain industry, you can bet that’s where all the major experts and investors are too. So pitching a startup in an area where no one is available to work or support the business is a major disadvantage and can cause some serious trouble later on.

  1. Bad Idea

A lot of new startups are based on derivative ideas borrowed from other businesses. There is nothing inherently bad about this – if you can do a business better than others, it’s a great way to start. But some of the most successful businesses are ones that started as a solution to a specific problem that the founder identified. A derivative idea can only go so far before it collapses.

A lot of the best businesses were started because the founders wanted to solve problems in their daily lives. Hotmail was started when the founders found it frustrating sending emails to each other and Google was started when Larry Page and Sergey Brin were tired of searching the web in an exhausting and complex way.

Targeting problems that people complain about regularly is a great way to stumble upon the next great business idea.

  1. Not Managing Investors Well

You have to adopt a culture of treating investors as co-owners in the business, a status legally granted to them. A startup must be wary of taking too much or too little money for the business’ operations and must manage the expectations of the investors well in order to succeed.

Burning through cash or not managing finances effectively could land the business in a lot of trouble. In fact, the number one reason businesses go bust is due to bad cash flow, and investors will not stand by as the founders go about wasting their money

Launching products too early or too late, half-heartedly promoting the business or simply not managing expectations could cause investors to lose faith and cash out early. This has spelled disaster for many startups around the world, so don’t let it happen to yours.

  1. Fights Between Founders

This one is similar to bad investor management. The largest stakeholders in a business are arguably the founders themselves. Disagreements are bound to happen, but not all startups fail because the first few founders left. It is crucial to maintain balance and harmony in the leadership to avoid ruining the business.

What a startup needs is a passionate and dedicated founder team that sets the stage for sustainable future growth. Disputes between founders are not due to situations, but people. Sometimes people just can’t find a way to get along and this is bad for business. Have a plan in place for any such eventuality, and make it easier for people to quit if they really must.

Having a good lawyer on hand is a great way to avoid problems between founders and investors. The contracts drawn up at the initial stages of a business are an effective way to avoid trouble when things go sour.

Though all might seem rosy when you’re starting out, you never know what may happen down the line, and a lawyer can help safeguard the business and the individual founders from any unpleasant litigations or disputes in the future.

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