6 Common Mistakes Startups Make & How to Avoid Them

Starting up a business is incredibly challenging which is evident in the widely known 90% failure rate. Thankfully there is methodology and proven methods like the LEAN startup method which can increase our chances of success significantly.

Kyle Ferguson
June 23, 2023
3 min

Starting up a business is incredibly challenging which is evident in the widely known 90% failure rate. Thankfully there is methodology and proven methods like the LEAN startup method which can increase our chances of success significantly. If you haven’t read the LEAN startup by Eric Ries or the Startups Owner Manual by Steve Blank , I highly recommend it.

Sometimes the best advice starts with what not to do.  Below are some of the most common mistakes that I see entrepreneurs at the early stages make.

Less is not more when it comes to ideas | RNZ

1. Thinking it's such a good idea that they don’t need to test and validate it. They want to go right to building the product.

This is almost the equivalent to knowing that there is gold in a vast area and instead of going about figuring out where it is exactly, you just start digging.

What you should actually do: Develop a thesis and assumptions for what your product / service is going to be and design tests to validate each of your assumptions. These tests don’t need to be complicated. At the very least you should share your idea with potential customers and see what they think of it. You might also put out an ad to your target audience to see if anyone signs up or clicks it. Forget about the old adage "build it and then will come" instead, make sure that there is the demand for your product before you build it.

2. Starting your Sales or Business Development focusing on big brands.

-The truth is that most of the time big brands don’t want to work with small companies. While it might be a sure fire way to send your business soaring if you do land a big deal, you're going to need to get some traction with smaller brands and prove yourself before you get interest from bigger brands.

What you should actually do: Get some wins under your belt and then start reaching out to the heavy hitters. Build up your reputation, gather reviews and add some sstats to your resume

3. Determining equity splits / formalizing roles too early on

At the very early stages of a startup, it's very hard to determine perfectly the amount of effort and value that is going to be coming from each teammate as you scale the business over 2-5 years. It's a huge decision to decide to become equity partners with someone and just like you wouldn’t ask someone to marry you after a few dates, you don’t want to lock in your equity agreement until you get a sense of how the partnership will go.

What you should actually do: Determine a framework for thinking about equity, discuss potential roles/skill sets and make sure you are on the same page in general. If you are starting a business with somebody, there should be a high level of trust. You might want to wait until you get your first few customers and see how involved everyone actually is before solidifying the equity agreements.

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4. Spending too much time on the name, buying a domain & patenting your idea at the very early stages

The name of your business, having the perfect domain and patent for a half baked product is not what is going to make it successful. Having product / market fit is infinitely more important.

What you should actually do: Set a time block for brainstorming a name, come up with a few options and then decide on one that you will use until you are ready to start selling your product and service. If you are having trouble coming up with the perfect name, don’t let it hold you back. Keep talking to customers, getting feedback and moving forward on the other important parts of your business.

The first step of your business should not be to patent or trademark your name unless you are developing a very specific piece of technology for which you already know there is a demand. It's important to stay consistent with your vision but be flexible on the details. Most businesses pivot a few times before zoning in on the perfect business model.

5. Trying to raise money before they validated their idea and can show traction

No matter how well connected you are or how good your idea is, no investor wants to invest in a business with no traction. Traction is the life blood of early stage startups.

What you should actually do: Get as much traction as you can for the lowest price. Do everything that you can to show and prove that there is demand for your product before you start to invest significant resources into it. You don’t necessarily need to build and sell a product to get traction. You can get pre-orders, sign ups, conduct customer interviews, etc.

6. Scaling too quick instead of going lean. I.E. building a whole tech platform before they have customers on board, burning too much capital inefficiently

Many startups scale too quickly and burn up their capital inefficiently. As a startup, you need to be frugal and efficient with your resources. This is where the “lean” part of the LEAN startup methodology comes into play.

What you should actually do: Ask yourself and teammates if you really need to make certain investments. Make sure every investment is justified and measured. Keep track of what is working and what is not. Test channels before making big investments into them. Do things non-scaleable before your design scalable solutions. Fail fast and cut out whats not working  fast.

Understanding Your Market

The success of any startup relies heavily on understanding the market it operates in and identifying the ideal customers within that market. Understanding your customer and becoming a subject matter expert is key, especially at the formidable stages.

By having insight into potential customers, you know what problems you should be solving with your product and how to communicate in a way that appeals to them.

The market is the broader industry that you serve. The ideal customer dives deeper into who your product is the best fit to serve. It's a way to segment your customers.

You might not know who your product best serves yet, and that is okay, but it's important to hypothesize and test who is.

Make some assumptions about what would make a customer a good fit for your product and test those assumptions otherwise, use your current customer base and data to guide you.

Here are some of the key steps to understanding your market and identifying your ideal customers:

Understanding Your Market

1. Research industry trends and news: Stay updated on current and emerging trends in your industry. Search Google news, read articles and follow the right people on social media to gain insights into customer preferences and potential opportunities.

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