By Annis Uzzaman
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 hinge on several important decisions. These are some of the typical mistakes that entrepreneurs should be careful to avoid when building their businesses.
- Many startup founders are not flexible with their original ideas and their decision-making process.
Flexibility is a 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.
- Startups may hire too many people with similar skill sets.
Diversification of the team’s personalities, skill sets, and backgrounds is essential to building 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 PhD to be one of the top architects, but you also need junior programmers to balance out experience, skills, and speed.
Cost is another 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.
- 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 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.
- 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.