5 Common Startup Mistakes And How To Avoid Them

9 out of 10 startups fail. For our 15+ years of work on the market, our OS-System team worked in various startups. We decided to share the most common mistakes that founders face. In this article, we have collected 5 main startup mistakes with examples that will help you avoid them in your startup.

Common startup mistakes: no demand for the product

42% of startups fail because they are solving a non-existent problem. Their product or service may be cool in terms of idea, design, and advertising but completely unnecessary for the consumer. Why this happens:

• No working idea. Startups do what is needed for a rare or small audience; do not achieve product/market fit. The consumer does not understand the value of the product. Word of mouth does not work. Sales go bad.
• Product has not found the market. The entrepreneur has not done the market research and does not know the demand, the market size, how the consumer solves such a problem, and whether they need a different solution.
• Spaceship development instead of a minimum viable product (MVP). Startups make an expensive and long-developed product that turns out not to be needed by the consumer. This is how Concorde failed—a supersonic airplane that transported people twice as fast but cost too much—only $1 billion was spent on its development.

You can have great technology, great customer behavior data, great reputation, great experience, great advisors, etc. However, you have little chance of succeeding if you don’t have the technology or business model to solve the problem at different scales. What to do: 

• Identify your target audience and the problem your product solves.
• Develop a minimum viable product for the market. Show the product to the customer and let them use it. For example, don’t launch grocery delivery in 20 minutes all over the city, but start with one neighborhood in the center. And do away with a simple one-page website on a free builder and an Instagram profile rather than spend 6 months making a $20,000 app. 
• Listen to your customers to improve your product and business processes. 14% of startups fail because they ignore their users and do things their audience just doesn’t need. 
• Promote the product and improve unit economics. You need to lower the cost of customer acquisition, increase the check, and achieve repeat purchases.

Business analysts at our OS-System team recommend first creating a prototype and immediately choosing the right metrics to objectively evaluate the product.

Common startup mistakes: lack of resources

In 2022, 47% of startups didn’t have enough money to survive. In 2010, Flud, an aggregator app for reading news and blogs, attracted $2.1 million in investment. The startup grew and planned to raise up to $8 million more for further development, but no investor was found. In 2013, the project shut down. Why this happens:

• It is not easy to attract initial investment, especially without any successes and profits of your own.
• Startups do not devote enough time to finance. They do not work with the financial system, indicators, or reporting and do not understand management accounting.
• Entrepreneurs focus on false indicators. They count users, clicks, visits, and media mentions instead of unit economics (how much they spend to attract a client and how much they earn from it).
• Error in pricing. For example, the startup COOLEST raised $13.2 million on Kickstarter to develop a thermal bag for picnics, but it did not calculate all the details, so the cost of production was higher than the final price of the product.

What to do: 

• Bring the project into profit before attracting the first investment, and you will have a higher chance of getting funding on favorable terms.
• Build a financial system. At the initial stages, understand the reporting yourself: keep a Cash Flow Statement and payment calendar, a P&L (Profit and Loss Statement), and a Balance Sheet.
• Calculate unit economics. Understand the cost of one contact, the cost of attracting a client, the average check, and the profit from one client for the entire work time. 
• Work with pricing and costing. Calculate the resources needed to create, implement, and promote a product.

If you have any financial troubles at your startup, our OS-System business analysts can help you. Feel free to contact us!

Common startup mistakes: problems with the team

23% of startups fail due to a lack of motivation, expertise, and a unified vision in the team. Why this happens: 

• Founders lack the necessary expertise and can’t pick people for the team; they can’t determine their experience, quality of work, and skills.
• Managers, on the contrary, hire specialists who are weaker than themselves and who do not help to make the product better.
• There is no internal system, so the team can fall apart due to disagreements, a lack of clear rules, and inefficient management.
• Conflict with the investor—In some situations, the investor controls every step, dictates its rules, and tries to realize its own ideas, which may not coincide with the company’s vision.

What to do: 

• Understand what tasks must be solved and who exactly will do them “on the shore”. For example, you have decided to launch a fast delivery service for products in several areas of the city. No team member knows how to make websites, run social networks, or advertise. Under this task, you need to look for a marketer who will already attract contractors as needed to develop the site, engage in social media marketing, engage in targeted advertising, etc.  
• Write internal rules: who is in charge, what the goal of each official is, in what form employees report, what their KPIs are, and what rules the team works by.

Work to keep the team interested, and each employee understands their investment in the project. A working team is formed not only by goals but also by shared values. That is why we at OS-System recommend creating a corporate culture and approaching it as a brand-building or product development project.

Common startup mistakes: no business model

It’s harder to attract investment until a startup starts making enough money. Investors want to understand how their money will be used and how they will benefit. Without clear monetization, any idea becomes risky. Why this happens: 

• Founders focus on the product and don’t calculate how they will get back the money invested.
• Dependence on a single partner, vendor, or customer acquisition channel.
• Startup overestimates the market size. 

What to do:

• Calculate the business: how much money you need to produce the product and exactly how you’ll make money. 
• Determine your customer acquisition strategy: how you will differentiate yourself from competitors, what channels you will use, and how many resources you need.
• Adapt the business model to changes in the market. For example, according to this principle, some restaurants started selling food preparations with a recipe instead of ready meals during the COVID-19 pandemic.

If you need help with the discovery phase, our OS-System team can help you.

Common startup mistakes: weak marketing

14% of startups fail because of ineffective marketing. Founders often think their product is so good that it doesn’t need marketing. As a result, the company simply doesn’t have enough customers to turn a profit and grow. Why this happens: 

• Founders didn’t plan for marketing costs – everything goes into product development that no one knows about.
• High competition – a small advertising budget does not help the product to make itself known in the market against the background of competitors.
• No analytics – it’s unclear where customers come from, which tools are profitable, and which ones only waste the budget.

What to do: 

• Budget at least 25% for marketing. This is the ratio in which small business owners with up to 20 employees allocate their finances.
• Take into account your audience and competition in the market: what need you are addressing, how you will differentiate yourself, through which channels and platforms you will sell, and what you will be able to convince them to switch to you. For example: premium home shoe brand Mahabis relied on design and promotion through social media. This allowed them to reach a turnover of $18 million in just 2 years.
• Implement analytics that will allow you to understand where customers come from, how much it costs to attract customers through each channel (contextual advertising, social networks, YouTube, influence marketing, media, etc.), what ROMI is, etc.

Startups can face several problems at once. In the new economic era, entrepreneurs must quickly adapt and understand different aspects of business, including management, marketing, finance, and team selection.

Look for a reliable IT partner for your startup? Contact us at OS-System!