Many new startups fail during the first two years of operation, while those already established do not make it past the fifth year. This is because there are several common mistakes that almost all entrepreneurs make. If you plan on launching a startup, this article will take you through the top startup mistakes to avoid.
Failing to Prepare Before Launching Your Startup
Preparation is essential if you want to succeed in anything you do. It is important to ensure that you have the necessary skills and knowledge about the startup activities you want to undertake. Put everything organized and in place. Apart from working hard and being diligent, good health is also crucial for your startup’s success. You will need to take lots of rest and ensure you are in the right state of mind before embarking on your business journey.
When preparing to launch a startup, it is essential to conduct proper research on the associated risks, government policies, and costs of running the business and be prepared to meet all challenges head on. It is evident that the founders of Efritin (a Nigerian classified ads platform) did not do a good job on this. The startup was founded in 2015 and closed operations in 2017 due to the high costs of doing business in Nigeria and mismanagement of funds.
Skipping to Prepare a Business Plan and Business Model
When you are set out on a journey to an unknown destination, you will need a road map. Similarly, starting a business is like venturing into the unknown, and a business plan should act as your road map. Many entrepreneurs ignore business plans, not knowing that they are essential components of successful businesses. A business plan will outline your goals, how you intend to reach them, how much capital you need, and how you intend to raise it. It also lays out the competition and when to expect profits. On the other hand, business models will outline how you intend to make profits. Failure to prepare a business plan and business model is preparing to fail.
Wabona was a South African video-on-demand startup founded in 2012 by Simbarashe Mabasha and Simukayi Mukuna. The startup was shut down in 2015 because it failed to find a sustainable business model.
Skipping Essential Legal Procedures for Business Registration
It is crucial to follow all legal procedures concerning business registration. Different business types may require different types of licenses and business permits to operate. Skipping this part may result in heavy fines by authorities, which could be a major setback for your business. Apart from costing you heavily on finances, you might need to use a lot of time to correct this mistake in the future.
Failing to Identify and Understand Your Target Market
Every business targets a specific market or audience. Identifying your target market and understanding their needs is one of the most crucial steps of starting a business. This will help you know what they need and how best you can solve their problem. You can have a great product or service, but if you have no one to sell to, then the business becomes pointless. It is also important to identify and focus on a market that you can build a big business in.
Outbox was a mail delivery startup based in San Francisco that closed down its operations because there wasn’t enough customer demand to support the model’s cost.
Most new startups usually have limited access to capital. In this case, handling money irresponsibly is one sure way to fail. A well-detailed business plan should outline how you use your startup capital. Purchase the things you really need, and when you are just starting, it is best to have a small number of employees. Hiring many employees means you will use a lot of money that you would have otherwise used to grow your business to pay them.
Wala was a South African crypto startup founded in 2017 and closed its operations in 2019. Wala’s founders blamed its failure on Africa’s poor infrastructure and unreliable internet. However, other sources disclosed that the startup failure because its founders spent funds lavishly, therefore wasting most of its resources.
Thinking You Have No Direct Competition
Unless you are introducing a new product on the market, the competition will always be there. Most entrepreneurs are often caught up in the excitement of starting a new business that they begin to think that there is no direct competition. It is best to conduct research about your competition and develop a strategy to stand out in this competition. Failure to do so will lead to frustration in business.
DealDey was a Nigerian daily deals eCommerce platform founded in 2011. It was set to be one of the leading startups in Africa, but it shut down its operations towards the end of 2018. This is because it faced stiff competition from the online marketplace Jumia.
Failure to Create a Marketing Plan
Business marketing is important in driving sales. You need to develop an excellent marketing strategy that will help you get initial users, convert the first users into paying customers, and make these customers bring others along. Although you might have the best products, you will still need to invest heavily in marketing to get the word around about your business. Failing to create a marketing plan means that no customer will know about your business, and you won’t make any sales. Marketing also helps you stand out in the competition.
Everpix was a photo startup founded in 2011 but closed its operations in 2013. Its founders spent too much time on growth and development but began marketing too late. Failure to market their product put it at a disadvantage, and they could not compete effectively with their competitors.
Undervaluing Your Products or Services
The main reason entrepreneurs start businesses is to make profits. However, your price margins should be reasonable and fair. Pricing your products or services too high will make your customers flee. Again, when most businesses start, entrepreneurs tend to lower their prices to gain market share. This is good, but you need to be careful not to overdo it. If your products and services are of good quality, price them accordingly. You shouldn’t incur losses just to retain customers. There are many marketing strategies you can employ to keep customers coming.
Partnering with the Wrong/Unreliable Investors
Your choice of investors will make or break your business. Therefore, it is essential to partner with the right investors from the beginning.
OyaPay was a Nigerian fintech startup founded in 2017. This startup shut down its operations in 2019 due to a family investment that went wrong. Abdulhamid Hassan, the CEO, had taken a seed round from a family member. However, when the need for investors kicked in, the family member backed out.
Expanding Too Quickly
You might start seeing success during the initial stages of business and decide to expand. Do not do that. Give yourself time to see if the period of growth is temporary or permanent. If you expand too quickly and come to realize that the growth was temporary, you might not be able to pay the extra employees you hired, and you might also not be able to clear the new stock you bought. Therefore, if you are to expand your business, it is important to take little but steady steps.
Underestimating Capital Requirements
Your business plan should outline your capital requirements clearly. Many entrepreneurs lack the capital to finance their activities because they did not factor in unknowns, challenges, and setbacks to be expected along the way. Having a positive attitude towards success is important, but it is also entrepreneur-like to plan for the worst-case scenario.
Afrostream, a Cameroonian subscription video-on-demand startup founded in 2014 by Tonje Bakang, ceased its operations in 2017 when they failed to raise funds to finance the content acquisition.
You can start up and run a successful business if you follow the right process. You do not have to know it all to succeed. With the help of business mentors and the right attitude, you are sure to build your dream business. Most importantly, do not fear to fail. Failure is a learning point for anyone thirsting for success.
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