Some Common Pitfalls!
Crisp execution is vital to the success of new businesses. It stands to reason, therefore, that poor execution is a common pitfall of many start-ups. There are several ways you can avoid execution failure. First, you should conduct an honest evaluation of your skills and only pursue opportunities that are aligned with your strengths. It’s also wise to surround yourself with talented people. Companies with inept leadership usually fail in the first year or two. As a founder, you need the discipline to know when to hand over the reins to a professional manager who can take your business to the next level.
No Viable Market
Research and validate the market before you launch your business. Talk to prospective customers and find out what they really need. Chances are, you will end up with a much more compelling offering than what you initially dreamed up on your own. Remember, find the customers first, then look for a solution.
Each day, entrepreneurs from the “build it and they will come” school of business invest their money in a cool idea with the hopes that customers will magically appear once they open the doors. History is replete with ventures that crashed and burned because the founders spent all of their time and money developing a product without bothering to consider how to attract customers. Even worse, many did not really understand what customers valued and were willing to pay for.
Lack of Funding
It’s all too common for entrepreneurs to grossly underestimate the amount of time and capital necessary to reach cash flow breakeven, causing many promising ventures to shut down prematurely. Be conservative with your financial projections and plan on having adequate funds when you launch to cover all sunk costs (including start-up losses) until your company becomes cash flow positive.
If you don’t have enough savings to cover the required investment, it may be tempting to launch your start-up under the assumption that you will be able to obtain funding at a later date. While staging investment has its advantages (preserving the option to abandon, higher valuation and therefore less dilution etc), this strategy can backfire and leave you unable to get the money when you need it most or force you to negotiate with banks and investors from a position of weakness. It’s often better to change the business model to bring required investment in line with available resources.
Lack of Competitive Advantages
If you want your start-up to thrive, you need something that insulates it from competition. It could be a great location, a cool brand, proprietary technology or a cost structure that cannot be easily replicated. None of these advantages is likely to be permanent, but they only need to shield you long enough for your company to take root. This will give you time to make investments that create additional barriers.
Picking a Niche That is too Small
Most small businesses compete successfully against larger rivals by specializing in a niche market. However, you still need to do your homework to be sure that the niche is large enough to support your business and that customers are not too expensive to find and serve. You may discover that niche markets can be just as fiercely competitive as the mass market. You need to figure out how fast your niche is growing and how much market share you will need to capture.
If your financial projections require you to hold more than a few percent of market share to remain profitable, be careful. Don’t press ahead unless you can convincingly demonstrate to yourself how your competitive advantages will enable you to become the market leader.
Breakup of the Founding Team
A start-up can be a high-stress environment, especially when you are struggling to turn the corner before the lights go out. At moments like this, disagreements about the direction of the company or the division of profits among the owners can lead to a rift within the founding team. Because people wear lots of hats in start-ups, the sudden departure of a key executive can doom a fledgling organization. This makes it imperative to structure agreements so that the founders and key hires are treated fairly and that everyone’s interests are closely aligned with the success of the new venture.