Out of every 95 startups, only five succeed. Meng, our JFDI Chairman and Social Engineer, covered this phenomenon in our webinar “Funding With The Frogs.“
The startup world is full of high-energy, intelligent, hacker-type personalities. All of these traits, if fuelled by an idea, result in seemingly unstoppable missions.
But not so fast. According to Meng, here are five common reasons startups fail:
Pitfall #1: Assuming Funding Will Come
Here’s how a brick-and-mortar store works: you find money, build the store, sell stuff, hope it profits. Startups are the opposite: money comes in last. So there’s this assumption that just because the idea seems invincible, it will be.
Complex listed Webvan as #11 of Worst Internet Startup Fails Of All Time. Webvan was an online grocery delivery service started by Louis Borders. Their e-commerce plan included an aggressive expansion budget, then pay for it somehow. Webvan filed for bankruptcy in 2001.
As a startup your priority is to work out a business model where you can eventually build something that people would pay for, not depend on funding to survive.
Pitfall #2: Forgetting Competitors
This research isn’t just about other people’s business models – it also helps shape your own. MaRs has an intensive guide in finding competitors, such as looking at startup databases, periodicals, online media references, etc.
In JFDI Asia’s batch portfolio, all the tech apps have a category under ‘competition’. Heyleela, an India-based fashion online store, lists Shopstyle, Lyst, Wanelo, and Fancy as competitors. Why is it important? So they can differentiate. Heyleela boasts of a mobile strategy and simplicity that others don’t have. This is their unique selling proposition.
Pitfall #3: Not Having The Right People
You need a team that can actually execute the plan. Forbes’ summed it best — there are three components to a dream team:
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Hacker – prized for their ability to code and program.
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Hustler – knows marketing, communication and strategic partnerships.
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Hipster – the Creative Director.
Team dynamics is big factor in our selection process for the Accelerate program. It’s very important for founders to have complimentary skillsets, know who does what and be able to fill gaps within the daily startup activities.
Pitfall #4: Overlooking A Flawed Business Model
Pets.com is one of the most highly publicized startup failures in history. The flunk was a combination of a lot of things, but in summary, they simply didn’tstudy the market well.
On the other hand, TradeGecko joined our Accelerate program in its earlier days. The founders quickly realized their mobile sales app isn’t working. Instead, they came up with a solution on top of their original platform. Today, TradeGecko is known as one of the most innovative business-to-business software providers in Asia.
Pitfall #5: Working In A Vacuum
“One common mistake is creating a start -up where nobody knows anything about it, because if they knew something about it, they would realize how difficult it was.” – Meng
Meng told a story about a bunch of MBA candidates brainstorming, only to settle on something so novel, so uninformed, that they’d end up not doing it. It otherwise would not happened if they tested their assumptions by getting out, and talking to customers.
In our 21-day online program, JFDI Discover, we emphasize heavily on using the Lean Startup methodology to validate startup ideas.
“The grand startup question isn’t: Can we built this product? It should be: Should this product be built?”
These tips won’t guarantee success, but it helps to understand the common pitfalls to avoid.
You can watch the full webinar in the video below:
https://youtu.be/2p6qOuh0bUA
Thinking of starting your own business? JFDI Discover will help you find out if you really want to be an entrepreneur. It will reveal if your team is aligned to deliver results. And it will show you how to solve a real problem for customers who are willing to pay thus moving closer to a “problem-solution fit”. Join JFDI Discover, starting April 3 2015.
Crystal Superal is the Content and Social Media Marketer for JFDI, the #1 business accelerator in Asia. When not writing about startups, golf or lifehacks, she reads. Follow her thoughts on Twitter @crystalsuperal