Building a startup is a tough but rewarding journey. At each step, the startup founder needs to be careful about what he or she decides to do. Every stage of the startup journey is likely to have several important decisions. These are some of the typical mistakes that entrepreneurs should be careful to avoid when building their business:
1. Many startup founders are not flexible with their original ideas and their decision-making process. Flexibility is the other key element in startup success. Initially it is vital that you understand market needs and potential demand for your product or service. Research, market surveys, and validation are critical. Assuming that you are launching a product, it’s smart to build the product in stages. Be sure to check what the market needs and validate the product at each stage. If market feedback conflicts with your design, you can minimize the losses involved in redesign. Being flexible helps you quickly pivot your startup based on market feedback. Rigidly sticking to your original core concept may result in failure.
2. Startups may hire too many people with similar skill sets. Diversification of the team’s personalities, skill sets, and backgrounds is essential to build a strong company. Startups may be tempted to hire like-minded people with the same skill set and personality type. It’s better to have diverse perspective among employees, since different perspectives often lead to the best possible solutions. If your startup is a software company, for example, you might need a Ph.D. to be one of the top architects, but you also need junior programmers to balance out experience, skills, and speed.
Cost is also a balancing act and it often makes sense to have a mix of in-house and out-house resources. Many successful startups outsource some of their required services such as HR, payroll, benefits, and IT services. Outsourcing product development – to a certain degree – can also give startups a major cost-performance benefit.
3. Many founders don’t fully understand the market. It is very important that startup founders know the market well. Some startup founders launch their business in an environment with simply too much competition. Ask yourself, “what is my unique selling proposition and how will we differentiate ourselves from the competition?” As you learn more about the industry that you’re entering into, you will understand hurdles and how you can overcome them. Understanding the market and being well prepared will help you execute successfully.
4. Founders may not know how much capital to raise and how much equity to offer. Many startup founders do not know how much equity to give away at each stage of the startup growth cycle. In many cases, they end up giving up too much equity at an early stage of the company, in return for little capital. When they need to raise more funds, the deal becomes less attractive for new investors. Knowing how much equity to offer at each stage is critical. As the startup progresses toward an exit, the founders and key team members need enough shares to remain motivated to take the company forward. Otherwise, the team won’t have sufficient driving force to reach a successful liquidity event.
5. Founders raise capital from one or a limited number of sources. Do not raise from just one VC or one angel; you will need capital from multiple sources to drive your growth. Diversification of capital raised is a key element of startup success. Relying on a single party VC or angel is a common mistake; the problem is that there may be less overall support in future financing rounds. Multiple investors help solve this problem as they each have their own pools of capital and networks to support startups needs at each stage of their growth.
Overall, the startup building process is both challenging and gratifying. If you as a founder want to lead a successful startup, then take your time to collect enough information and understand your customer before you launch. If you want to broaden your view of startup success, then consider working in a startup or a venture capital firm. No matter what you’ll make mistakes as a startup founder, but it’s key to recognize them quickly and make constant adjustments along the way to success.
The post How to Avoid the Top Mistakes that Startups Make appeared first on Inc. and is written by Anis Uzzaman
Original source: Inc.
