Startups are extremely exciting. You have a brilliant idea, you create a plan, you're ready to launch and rule the world! It's a naturally fast paced environment, but in the process, many first time entrepreneurs speed through it too quickly and miss out on some critical areas that they'll pay for later. Here's what they are!
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Making the wrong product.
You might have a 'lightbulb moment' where a brilliant idea strikes you like a bolt of lightning. It might seem terrific at the time, but at this stage it still a guess. You need to validate your business concept with real customers, gather data and then look at it from a business perspective. Does this idea make sense? Is it worth doing? Is it solving a big enough problem? Don't let your emotional connection to your product or idea get in the way or real world, brutally honest feedback. If you're selective with what you hear just to solidify your own opinions, you may just end up building something that you want and not what the market wants.
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Picking the wrong team.
This is one of the most common causes of startup failure. At the beginning it's exciting and you want to just get into it, so you don't think far enough ahead when it comes to who you're working with. The most dangerous things founders say are 'It'll be fine' or 'he's my mate'. Unfortunately it's not that simple, and even if you've got into business with friends or family, as soon as money gets involved, it's a whole new story.
You also may get along well, but you may run into one of two problems. The first, is that you both have complimentary skill sets, meaning you've given away a large chunk of your company to someone who does the same thing as you. The second (and most common) is that one of you will likely work harder than the other, and this creates friction. Which leads to the next point.
No solid legals.
If you go 50 / 50 and start a company but then the other guy leaves, he still gets half and there's not much you can do about it! There needs to be key legal agreements in place such as:
- How much equity each person is going to get.
- What role each person is going to play.
- Who is the CEO. Even if it's an equal share, one person has to be the decision maker.
- Any vesting agreements, meaning they have to stay on for ( x ) amount of time to claim their equity (this is a big one).
- A foundation for what is deemed appropriate, and when someone can be officialy warned or eventually terminated.
Not enough market research.
If you've validated your concept with customers in point one and you've decided you want to continue, there's still research to be done! Before you rush into anything, spending time and money on starting and growing a company, you need to make sure you've researched the market and the competition.
Sometimes entrepreneurs don't want to know if there's an existing solution out there because it will ruin their 'vibe', even if they know it's a possibility. The quote 'don't ask questions you don't want to know the answer to' does not apply here! Do your research! Or you may just end up making another 'me too' product that is just a worse version of the competition (which you didn't look at).
Poorly structured finance
Accounting is the language of business, and even if you're not a number wizard you need to have a grip on your finances. This is something I personally find boring, but it's arguably the most important part. There are a few key things you need:
- A budget.
- A business bank account separate to your personal account.
- An accounting program or system (like Xero or Freshbooks).
- A balance sheet.
- Regular reports on cashflow and your profit and loss statements. Combined with your budget, this will allow you to create what's called 'runway' which is how much money you have left before you crash and burn to a fiery death (just joking - but seriously).
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There's much more to learn on every one of these topics, but now you know what you don't know! If any of these are unfamiliar to you then get out there and study up. It may just be the difference between success and failure!
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