No less than 20 percent of new businesses fail within the first 12 months of operation, and more than a half – within the first 5 years, with the percentage being even higher for tech startups that have to deal with extremely high competition and skepticism of potential customers. These aren’t very good odds, and if you are going to start a new business, particularly if you are doing it while still in education, you are going to need all the help and advice you can get – which is what this article is all about. Here you will find the most common mistakes that lead to tech startups closing down, so read carefully.
1. Failure to understand all things financial
A financial plan should be the foundation of your startup, not an afterthought. How much money do you have? What will you need to break even? How much will be spent on salaries for you and your team? What does your product’s production cost? You don’t have to be a professional accountant, but understanding the basic aspects of cash-flow will help you understand what is happening and what exactly needs to be done.
2. Failure to do research on investors
If you have investors you need to make sure that your goals and vision for the company align. For example, imagine you had a vision of creating a website selling car key battery replacements, you want to cover every type of key but your investor , who is also a stakeholder holder in a particular car manufacturer e.g. BMW is adamant they only want to sell replacements for a BMW key battery. In this example your goals would be misaligned.
Understandably, your investors are going to have a lot of influence on how your company operates and evolves, and if there is a disagreement at the very beginning of its path, it is likely to spell disaster.
3. Poor hiring decisions
According to recent studies, 46 percent of new hires fail within 18 months of hiring. Such a huge turnover can effectively cripple the development of team dynamics when your unique business needs them most – during its initial months of existence. If a team fails to operate effectively, it is reflected on the overall productivity of your business, its ability to react to crises and use opportunities.
There are two aspects that have to be taken into account when hiring somebody: technical knowledge and personality, and it would be wrong to say that any of them is more important than the other. Ideally, you should look for people who combine both. However, it is often said technical knowledge may be acquired while improving someone’s personality is nigh impossible.
4. Failure to cultivate proper company culture
The decision of what kind of culture you want to be associated with your company is not an idle one. Company culture reflects your mission and beliefs, which can be a tremendous advantage for a new company that is trying to find its place in the world. Again, you should understand that the talk about company culture is much more than just talk – good company culture has been reported to have real influence on the productivity of employees, after all. It can also decrease the turnover among your employees – when people feel that they belong to a larger whole they are more likely to stick around even when the going gets tough.
These, of course, are not the only mistakes one is likely to make when founding a startup, but they crop up more often in companies founded by students due to their inexperience. Make sure to take them into account!
Are you launching a company whilst at university? What mistakes would you let others know to avoid?
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