How to Avoid 6 Critical Tech-Startup Failures
Plan ahead to steer clear of the most common pitfalls.
Tech startups are often exhilarating places to work. Whether you're employed by a tech startup or are fortunate enough to have founded one, there's an exciting feeling in the air: You're entering into a brave new world — one that needs your technology. You, after all, are the only organization deploying this solution in a specific way.
As an optimistic tech-solutions provider at a tech startup, you know you're taking risks. Startups rise and fall, but when they succeed, they can lead to big successes. Some tech-startup founders have the goal of selling a successful startup; others want to become the next Google or Facebook. Once you're in the business, it's not unusual to mix and mingle with alumni of these big brands, and it can really feel like you're in the big leagues at conferences and other events.
There's been plenty of discussion about why some startups fail. Let's discuss the most critical failures — and how to avoid them.
1. Failure to trust and utilize remote employees
Many startups run into this issue. The stereotype is that remote employees are lazy or that it's awful to think of people doing laundry or caring for their pets while they work at home. Isn't that company time?
But if you're based in the Bay Area or another tech haven like New York City or Boston, you can get top talent for less if you hire a remote worker located in another part of the world.
Think about why you need an office — or if you even do. Consider how many employees have years of successful remote employment experience or may have completed some or all of their degrees from reputable universities online.
2. Not giving employees what they want
Millennials now dominate the workforce, and many of them took their initial jobs with the promise of “sweat equity,” minimal benefits and long hours. Some tech startups offer interesting perks like napping zones, video games, beer fridges, free lunches and in-house gyms.
As the workforce ages, they'll likely want different things. Plus, you're not attracting experienced top talent whose needs don't fit into the hustle tech culture. Think about it: Are positions at your company suited only to underpaid recent grads who live at home, or do they also work for older millennials, who may be parents nearing the age of 40?
Figure out where your employees are by distributing an anonymous survey. What really matters to them? They might agree to get rid of the beer fridge in favor of health insurance. Many employees might opt for a staggered 10-hour, four-day work week or hot desking instead of a nap room or long-hour expectations.
3. Embracing hustle as a business plan
Those initial stages of growth are phenomenal. It's like an adrenaline rush, working at a tech startup. It's fairly common, in those first stages, to be all about the hustle. Hustle, however, isn't a business plan. It's not sustainable, and it doesn't project your growth and how you'll deal with that. If you really want to secure funding, you need a better plan.
Understand that not all of your employees will be about the hustle — at least not forever. Also realize that you need to ask people for help. Define, refine and pitch your business plan. If you have a team, ensure that you get its input and that you value its contributions.
Related: How to Write a Business Plan
4. Failure to define work culture
Are you a company that stands for gender equality and a commitment to preserving the environment, or do you have different values? Work culture needs to be a major part of business development, with a nod to the fact that it may change over time. Ensuring that you have a defined work culture means that this culture and related values get baked into the very foundation and evolution of your startup.
If you're just starting out, establish your core principles and let them shape your work culture. Keeping the values, mission and brand voice in mind, make sure you communicate this not only to your web designer and marketers, but also to your human-resources department. Those in the department will help communicate your work culture to potential new hires and ensure they hire good fits for the culture.
5. Scaling the startup to disaster
Scaling is one of the most challenging aspects of founding and growing a startup. It's one of the places startups fail most. If you stay too lean after your initial cash flow, it's possible you'll sink or see high turnover. Important things will fall through the cracks. Sprints won't end on time. You'll sail straight for disaster.
Most tech startups adopt agile methodology to stay on course. You can adapt quickly (as an organization of any size) and scale as needed. Additionally, don't be afraid to hire freelancers before you're able to commit to full-time hires. When you find the need consistent enough, bring those trusted freelancers on board in full-time roles.
6. Mismanagement of initial cash flow
After years of struggling to develop your product or service, it's finally time. By bootstrap, business loan or angel, you've received the influx of funding you need to move forward. After living in hustle and starvation mode for so long, you know what it's time for: to treat yourself.
At this stage, many startup founders make critical mistakes. There's a big difference between investing in new technology for your workforce and moving to a swanky office location for no good reason. Mismanagement of initial cash flow can lead the startup to run out of money quickly.
You have a plan for that money: Likely, it was required for you to get your loan or angel investment. Make sure you stick to the plan. Ensure you also have top financial talent ready to help you and make the most out of the funding. Stay on top of your income and returns too — you need to hit your projected turnaround goal to ensure long-term viability. Trust us, your employees want that more than a new espresso machine.
If you've made one of these crucial mistakes, it may not be too late. Don't feel bad — many startups commonly fall into these traps, especially in the early phases.
Entrepreneur Leadership Network Contributor