5 Ways Business Owners Avoid the Pitfalls of Managing a Startup
Is it brave to start your own business in today’s economic climate?
Of course, it is!
Seeing as 90% of startups fail in the first couple of years, it takes a lot of guts, stamina, and hard work to be one of the success stories.
So, if you’re a newly-emerged, ambitious entrepreneur, looking to invest time, effort and, of course, money into what you hope is a fast-growing business, give yourself a pat on the back!
Hey, you can even congratulate yourself if you’ve only begun entertaining the idea! We all start somewhere!
You should ask yourself now, though:
How do business owners of promising startups avoid the traps that can lead to failure?
Consider these 5 common mistakes made by Founding Teams and CEOs.
1) Not Being Humble
Until you’ve gone out and done it, and bought the T-shirt – and arguably, even then –, the best thing you can do is listen to the advice of others.
What have people running businesses in your industry done before? Do they have insight on how to get through that first year of starting a business?
- This information is invaluable. So, network! Meet professionals in your area, and glean from them as much know-how as possible.
2) Procrastinating on your Revenue Model
Your Revenue Model (a key factor of your Business Model) should be defined early. Startup companies are at risk of failure without determining from the offset how revenue will be generated.
Look at the type and source of revenue, and the costs involved:
- How will the business make money?
Product sales, subscriptions, pay per use, addon/in app purchases, license fees, service fees, etc.
- How will the business sell the product/service?
Direct to consumer, business to business, online and mobile, government, academic, etc
Pricing must also be aligned correctly with your Revenue Model, considering manufacturing and distribution costs, and also, importantly:
… a sensible one, remember? …otherwise you won’t make any!
3) Managing People and Relationships
65% of startup failure is down to people problems – and there’s a whole variety.
Picking friends or family for Founding Teams:
Whilst it’s common to want to do business with people you trust, picking co-founders you share a personal attachment with is dangerous. Noam Wasserman, a professor at Harvard Business School warns:
“…overlap can cause tension and leave holes in the team…”, “…because you know each other well, you often skip tough early conversations…”, and “…when facing decisions that are good for the startup but are bad for the relationship, you avoid dealing with it…”
This isn’t suggesting you DON’T use family or friends as co-founders, but it is important to be aware of the pitfalls that come with mixing business with emotional attachment. Safeguard your heart and your business venture by putting clear barriers between the two.
Assigning the wrong roles and titles:
More than a 3rd of startup founders want and receive a C title – ones they’re potentially not qualified for. This is a risk and can create a “top-heavy” structure within the business, leading to battles of will.
- Realistically, founders should choose titles relevant to their skills and what they intend to bring to the startup – below the C level if necessary.
Splitting equity too soon:
73% of startups split equity within a month – and this is usually equally at 50:50 between founders. However, the business is bound to change in many ways.
For example, with its:
- Business Model
- Revenue Model
- Personnel (Co-founders)
So, early negotiation of who gets what is a risk!
- It is better to ensure flexibility and have an arrangement in place, which states the necessity of re-evaluation if changes in the above areas occur.
4) Picking the Wrong Product
You can have the best business-savvy in the world, but still be trying to market a bad product! Forbes talks about the startup culture loving the next “bright and shiny object”, but many businesses fail because their products have no clear direction. They don’t solve any real problems.
Another issue can be Market Saturation. Have you created a product that’s already out there? Are thousands of people already using something very similar, or worse, better?
- A lot of Market Targeting, Testing and Tuning must be done on the product to ensure your Revenue Model is faithful and healthy. If the product is wrong for your target audience or not providing a clear solution to their needs/wants, you will save yourself a lot of expense and – if launched publicly – PR.
5) Not Using Financial Tools to Help
You need to be able to keep track of your finances.
Sounds obvious, right?
Unfortunately, for a lot of startups and small businesses, it can be an afterthought. Although you may not be burning through thousands of pounds or dollars, or not receiving a high volume of cash from customers yet, you must still be organised with your money.
Simply using Microsoft Excel is a start – if you don’t want to fork out for something expensive. Forbes details the necessities in their article “How to Manage Your Startups Finances” and they provide a template for excel:
- Cash inFlow
- How much you collect
- When you collect it
- From who you collected it
- Cash outflow
- The amount you spend
- What it was for
- Whom you paid it to
- Keep copies of all invoices – received and sent
Once your startup gains traction, you may want to look at other online software and/or professional people to work for your finance department.
So, what is the bottom line?
Navigating the world of business and trying to manage a startup is obviously not going to be plain sailing. But there are lots of things YOU can do to make the journey smoother.
It’s very tempting to follow your gut instinct with things – as we often do in life – focusing on the short-term issues and trying to solve them at the present time.
However, with business, it’s important to look ahead.
- What sort of future do you envisage your company having?
- Take care of all the pitfalls you can imagine having BEFORE they arise.
- Be rational about the long term.
- And, don’t forget to enjoy yourself!
Author: Debbie-Ellen Carr is a B2B/B2C SEO Copywriter and Founder of eleneva Content Marketing, specializing in FinTech, Science, and Health writing. Debbie also has a passion for the creative and has designed two websites – she’s also written four fantasy fiction novels and has published Travel articles in Women’s magazines.