For a small business to succeed today, you need to do everything right. Alas, the road to success is paved with land mines, and avoiding mistakes isn’t easy. The best advice is to be mindful of the biggest pitfalls that startups commonly make. Here are five of the biggest.
1) Failing to Protect Your Intellectual Property – A major difference between being a successful startup and a failure is being able to protect and defend your intellectual property. If you have an idea that you believe is truly unique, not contacting an Intellectual Property attorney to help you realize the value of your assets can be a fatal error. For example: Before they even spoke to Mark Zuckerberg about Facebook, the Winklevoss twins should have had him sign a Non-Disclosure Agreement to protect themselves against anyone using their idea to create a competing company.
2) Not Securing Enough Funding – How much is enough to get your company going? What do you need to get to the next step of success? Not being realistic in your funding requirements can prevent you from ultimately attaining profitability. Webvan failed because it overspent its funding to stock grocery stores in multiple cities before it became profitable in its first location.
3) Hiring Friends Instead of Veterans – Many startups founders hire their friends as their first employees. That’s great for rapport and camaraderie, but how disciplined are 20-somethings when it comes to meeting real-world deadlines? Do they know how to think outside the box to solve a crisis at midnight or are they too busy playing beer pong on your dining room table? Multiple startups have failed because they didn’t have some parental supervision by “greybeards” – older experienced managers – who have been there, done that, and can solve problems fast.
4) Being Late to Market – In the hyper-competitive startup market, being first can be everything. Facebook, Google, eBay, Amazon, YouTube, Zappos, and dozens of others were small companies which launched first and became huge companies, while most of their later-to-market competitors failed to capture that spotlight.
On the other hand, pushing to launch too quickly can also be detrimental to your company’s health. In the 2001 documentary, Startup.com, the now-defunct company was trying to be the first company to enable municipal governments to collect revenue online. The company got a huge contract for New York City’s Parking Commission worth millions to pay parking tickets via e-commerce. It had raised plenty of money but hadn’t focused on building the website properly, didn’t test it properly, and watched it crash repeatedly, leading to the company’s rapid downfall.
5) Not Knowing When To Pull The Plug – You have to be accountable to all of your investors, but you can only give CPR to a barely breathing company for so long. The bottom line: If your potential payoff isn’t coming any time soon after months or years of burning cash, it’s time to close it down and face the investors. And hopefully try again.