5 Reasons Startups Fail And How To Avoid Making These Mistakes

The startup ecosystem is full of stories of failure and success. It’s important to gather advice from folks with real-world experience to navigate the startup life cycle and avoid some of the pitfalls. Some say there is a staggering 90% failure rate, so we look at the most common reasons why startups fail and what to do in order to not capsize your endeavour. Below are 5 key mistake you can avoid.

How to Avoid Mistakes by Leapfunder

5 lessons for Startups to be successful

1. Manage conflict between founders

Problems in startups commonly stem from conflict between founders. Founders often want to do it all themselves and wind up spreading themselves too thin. It’s impossible to accomplish everything on one’s own, which is why a balanced team is so important; the capabilities of one should complement the weaknesses of another. A strong team shares values and workload; one team member will be a finance specialist while another will be in charge of product development.

“People really are everything in business” – Jesse Jacobs, Founder of Samovar Tea Lounge

Some studies show that as much as 65% per cent of all startups fail due to co-founder conflict (Think: higher than divorce rates!). Point of contention include: “who gets to decide”, “who gets what benefits” and “who’s idea is better”. A startup’s team is usually the number one reason investors decide to invest in a startup, so a strong team is more likely to raise funding. Communication is key to managing conflict, to not overstepping boundaries and to working in the same direction. Sharing a vision with co-founders is what makes a team dynamic, driven and determined.

2. Bridge the equity gap

The most difficult phase founders face is the ‘equity gap’ and many startups don’t make it past this point: that awkward time between their earliest injection of personal funding running out and the company is not yet ready for future VC rounds. Some startups typically get initial funding from close ones (‘FFF round’: Friends, Family and Fools) which also potentially means a lot of shareholders, and with it the risk of being less attractive for future investors.

“Leapfunder facilitated the administrative and legal settlement of the convertible note. Thanks to this we could welcome more than 25 new investors.” – Menno Kolkert,  CEO of Plot Projects

Leapfunder is a way to bridge the equity gap, making fund-raising less time-consuming. Our core product is an online tool accessible to any startup where all the legal, clearing and settlement of investment take place in a few minutes. All investments are made under the same conditions – via Leapfunder Notes – and funds from multiple investors are pooled into one entity, bringing structure to investments. For more information, you can contact us and also learn from a real startup what it’s like to bridge the equity gap with Leapfunder.


3. Validate the need for your product

Some studies show that as much as much as 42% of startups fail because there is no market need for their product and 14% fail because they simply ignore customer needs! Never lose sight of why you are building what you are building and who it’s for. Keep in touch with your potential clients, listen to their feedback (ex: alpha and beta testing) and validate the product idea with them.

“We built the website first and asked our customers about it later” – Robin Chase, Co-Founder of Zipcar

In the Lean Startup philosophy, the MVP (Minimum Viable Product) is a version of a product that is just good enough to give it to end-users. This version allows a startup to gather a maximum of information about customers, with the least effort. Instead of building a full website and getting maximum footwear inventory, Zappos founder Nick Swinmurn first visited a couple of local stores, taking pictures of their shoes and posting them on a simple website. Once the clients ordered he bought the shoes for the full price himself and shipped them out: This way he was able to test whether people were willing to buy shoes online or not before he created what turned into a billion-dollar business.

“I built a product without understanding the market or the users” – Sandi MacPherson, Editor-in-Chief at Quibb

4. Keep your eye on the financials

Many startups successfully raise funds and bring a relevant product, and fail nonetheless because of financial mismanagement. It’s very important to keep an eye on expenses. Know where the money is coming in and going out, what expenses are necessary and which ones aren’t. An unnecessary hire, a nice big office, company merchandising…, many startups realise too late they’ve set themselves up with too many fixed costs.

“We wasted $1,000,000 on a company that never launched” – Hiten Shah, Co-Founder at KISSmetrics

You’ve spent hours preparing your pitch and presenting to investors, don’t let that time and investment go to waste. Keep a close eye on the books and know the financial state of your business. Having frequent and clear communication with investors will also help to have a clear view of spending: often it is the external review that helps you see the problems.


5. Network – Put yourself out there

It’s important to know what is going on in the startup world: make time to get out there and mingle, to hear from others about what they are doing and how they are doing it. Telling others about what you do is usually a good way to practice your “mini-pitch” and an opportunity to establish new connections. The Leapfunder Round Table Sessions offer startups the opportunity to meet investors face-to-face in an informal setting, so they can ask questions, get advice and even meet potential future investors. Don’t miss your opportunity to join our next Round Table Session or other events.

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