Common Mistakes That Can Topple Startups If Not Avoided

Committing mistakes when you start a business or a startup is fine. This is okay at least for the first time founders. Many first time founders have succeeded and changed the world. They can do wonders.

Now is the generation of startups and you can see a deluge of tech startups especially in the on-demand industry. These app-based startups are somewhat easy to establish and run with minimal risk. But, the success rate is low. Still, the momentum has not reduced.

More than 80% of the startup’s founders are first-time founders. Like I said before they do make mistakes and it is completely okay. But, what if we have the possibility of avoiding some mistakes? It is certainly a plus right?.

Here I have mentioned some mistakes to avoid in a startup or an on-demand startup. This list is also applicable to traditional businesses.

Little to no market understanding

Many startups founders think that “ If we have a product or service, then people will come to us”. This is a complete misinterpretation of the market. People will only approach you only if there is a need. In simple words, you cannot sell something that doesn’t have a market.  

One cannot deny that almost all of them do market research before releasing their product or service. But, what you have to do is to understand the core need of the target customers.

Understanding the market not only helps to create a suitable product but also to find the right audience. So, take your own time before stepping and analyze the pleasure and pain points of the target users. This will make your approach coherent.

HelloParking is an on-demand startup that enables people to share parking spaces. This startup failed for the obvious reason that they failed to fit in the market.

The craze for external funding

There is Uber, Lyft, Uber Eats, Ola, Deliveroo, and some more. All of them are giant companies and all of them got huge funding. There is very little chance that you can be like them. There is a huge craze for external funding among this gen founders.

So, they focus more on improving the market capital of the startup/business instead of improving the value to attract funding.

I have to remind you that many decade-old successful businesses have not got any external funding instead they built the company from their own pocket.

So, don’t be obsessed over funding and sometime you will even succumb to the pressure of investors.

Many a time the business doesn’t work well because of some other reasons other than money and at such time work to tackle that problem. Follow your own way and funding will come to your doors. 

PepperTap is an online grocery delivery startup that closed after 3 years after launch even after getting four rounds of funding worth million dollars.   

Flawed unit economics

Unit economics is the revenue and cost involved per unit. If the unit economics is good, you can quickly recover the cost of a unit. In some cases, the startups have to make a customer buy multiple times to recover the cost spent to bring that customer.

Startups, mainly on-demand firms operate in a highly competitive market and they provide a lot of incentives, offers, and discounts to woo customers. Since they invest a lot of money in attracting customers, they face the problem of profitability in the long run.

Sustainability is more important than improving the customer base. It may not be easy to stabilize the unit economics at first but understanding the competitors can help you to streamline the unit economics.

Prim is a laundry service where a person collects the material and deliver it to the doorstep once it is completed. This startup failed because of abysmal unit economics.

Less emphasis on marketing

You may provide an out of the box service and may have spent much time on designing the service suited to the customers. This will not make the customers flock to your company. We should make a very good promotion.

We live in a world of distractions, people have a lot of distraction and they have too little time for other works.

So, it is a challenge to get the eyeballs on the product/service. Social media marketing alone does not suffice. Go beyond it and grab more eyes. Strategize your way of marketing. Focus on the target audience. Cutting marketing expense is not a good way to save money and you do more harm than good to your firm.

Spend 5% to 20% of your budget on marketing. On-demand giant Uber still keeps banners in the cities as a part of their marketing.

Random expansion

Many business advisors and even some entrepreneurs would say that a new startup should expand the market quickly, hire top talents, and increase market share. They say that doing like this will help you go global within a short time. This type of rapid expansion and quick movement may be suitable for one in ten startups.

This idea had backfired in many cases. Sadly, startups that get very good funding fell into the trap of quick expansion without considering the viability of running the business in the long term.

Take baby steps and focus on conserving the capital. Build a strong base, improve the company value, and have a strong target community.  

There is a community of startups that are functioning in small cities, towns globally and they have followed all the above-said points meticulously. They are on-demand taxi startups. They replicate the Uber working model and use taxi dispatch software systems to be profitable and at the same time sustainable. All their operations are done using the money from their market.

Final Wordings

The mistakes I mentioned above are some common ones committed by a large startup community. Knowing this prior would be a lifesaver for you in the sense that it helps to build a startup with more value and sustainable in the long run.

I prepared this list after interacting with a lot of experienced and first-time founders. Following these points require a clear mind with persistence and no craving for money, not at least in a short time.

I would recommend you to interact with established startup founders and that will be more effective than anything. You will get to learn from the experience of others.

So, start afresh and let the luck be on your side.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.