9 Dumb Ways Smart Founders Have Managed to Kill Their Companies
Entrepreneur's New Year’s Guide
Plenty of smart people have found dumb ways to run their businesses into the ground. Remember Traf-O-Data? Bill Gates and Paul Allen do. Before the duo started Microsoft, they aspired to build a product to help traffic engineers -- only to close shop shortly after the first product demo failed to function.
Failure is part of life in the entrepreneurial world, but too many founders let avoidable mistakes cost them their companies. CB Insights found that 42 percent of failed startups closed shop because they couldn’t find a market for their products. That’s a big problem, but it’s one that's easily fixed by founders who know how to swallow their pride when it’s time to change course.
To avoid joining the ranks of founders who wish they could do it all over again, steer clear of these common mistakes:
1. Commit to a solution over a problem.
This is the reason so many startups can’t find a product-market fit. Founders who come up with a clever idea and start looking for any excuse to turn that idea into a company rarely last long. The best founders start with the problem and work out the solution later -- not the other way around.
2. Let ego call the shots.
No startup exists in a vacuum. Even in the most niche industries, new companies must face competitors and existing ways of doing business. It’s one thing to buck trends; it’s another to ignore good advice from industry experts and needlessly doom a new endeavor. Stay open to well-meaning advice from people who know the landscape.
3. Neglect testing.
Icons8, a design company, wanted to make a new kind of icon to attract more customers. Instead, the company debuted a new style that no one wanted and saw user engagement drop by 50 percent. Don’t assume that the internal experts always know what’s best. Test new products and changes with real users before claiming victory.
4. Hire friends over experts.
Just as some friends weren’t meant to be college roommates, many people who get along well in regular life should never go into business together. According to Noam Wasserman, a Harvard University professor, every friendship connection in a team of founders increases turnover within that group by 28.6 percent. This isn’t to say that friendly founders can't work together -- only that friends who want to collaborate should consider how their personalities and skill sets overlap before committing.
5. Give up easily.
All of the biggest companies succeeded because their founders gave up at the first sign of trouble, right? Not exactly. Great founders don’t look for excuses to abandon ship. They do everything within their power to keep their companies afloat. If the product fits the market, someone offering that product will eventually succeed. Become that person by redoubling your efforts when times get hard.
6. Ignore investors.
Founders and investors don’t always see eye to eye, but founders who consistently ignore their lenders tend to lose more in sustainability than they gain in independence. Investors can offer a wealth of resources to startups willing to accept a little help. From expanded networks to uncommon resources, lean on investors for non-financial help to maximize the company’s odds of success.
7. Take cash flow for granted.
The business might be ahead of its sales targets and under budget, but if the timelines on credits and debits don’t add up, founders quickly find themselves scrambling to make ends meet. Keep cash in the bank to handle unforeseen events and provide a lifeline for times when invoices are late. Startups depend on their dedicated teams, but not many teams are willing to work without pay.
8. Assume growth will happen naturally.
Startups, like teenagers, grow in spurts. One day, everything is normal; the next day, the business needs to double its staff to keep up with demand. These growth spikes are great for prepared companies, but businesses that assume growth will continue often find themselves spending money on unnecessary overhead. Be reasonable about growth projections, and plan for -- but don’t rely on -- future growth.
9. Wait to staff until skills become necessary.
Technical founders need sales teams and marketers to find customers. Charismatic founders need technical allies to create solutions worth selling. To avoid sudden disasters, hire or consult specialists in development, sales, marketing, legal and accounting as soon as possible. Most small businesses don’t need full-time lawyers or accountants on staff, but founders can avoid headaches and lawsuits by covering their bases early with consultants.
In a cutthroat startup world, why leave success to chance? Startup Genome claims that 90 percent of all new businesses fail. Many of those founders could have led successful companies, but they let simple mistakes cut them down before they were ready. The only way to avoid following in their footsteps is to learn from the past and take precautions against it.