Even in the best of times, startups go off the rails. These days, with the funding shrinking, it has become even more challenging for budding companies to beat the odds. Over the last few years, startup failures grew by 60% as founders are grappling with the rumblings of recession and hangover from the bull market.
However, market pressure isn’t the only headwind that obstacles new businesses. Sometimes, founders’ missteps lead the startup to failure, even when external conditions are favorable.
Based on our experience working with 100+ startups, we have noticed that rookie business owners often fall into the same traps, meaning many new businesses fail due to similar factors. In this article, we’ve summed up the ten most common startup mistakes you’d want to avoid as a founder.
Mistake 1. Underestimating the power of planning
According to statistics, businesses that plan grow 30% quicker than those that do not. But more often than not, bright-eyed and enthusiastic entrepreneurs get so wrapped up in their innovative ideas that they forget to map out the workstreams that’ll get them to product-market fit. Fixating on the idea, founders don’t think about its execution, which inherently puts them at more risk and decreases their chances of funding success.
A business plan forces founders to think through their product or service idea and test it against market demand and competitive landscape, thus increasing the odds of achieving product-market fit. Also, a clear plan of action admits the entrepreneur to the investment process.
“Plan for a business that can't fail by keeping your business plan simple and accurate. Pay attention to three important things: your "value proposition," a thorough and realistic "financial forecast," and a comprehensive "market analysis." Keep your business plan flexible — being able to change with the times is very important.” — Mark Hirsch, Co-founder of Templer & Hirsch.
Business plans vary. But the common structure includes the following elements:
- Your business overview (business goals, the problem you’re addressing, and the solution/service you’re addressing it with, plus use cases)
- Market analysis (market size, competitors, and your differentiation)
- Business model
- Team
- Financial projections
Once you have laid out and jotted down these core building blocks, you’ll have a clear vision for your startup, and then, working backward, you can visualize the steps required to get from point A to point B.
Mistake 2: Failing to solve a real problem
The lack of product-market fit is not only the most common startup mistake but also the deadliest one. Successful businesses offer a solution that satisfies a real customer need — a solution your target audience is ready to vote for with their wallets. But what if the problem isn’t that bad and customers aren’t ready to pay for the solution? Or what if the competitors are good enough and customers just won’t switch to another product? In situations like these, no workarounds are possible unless you pivot your idea.
To make sure your solution moves the needle, you need to conduct market research, analyze your competition, and get into the minds of your potential customers. However, even all this data may not be enough to prove the demand for your future product. That’s why we recommend developing MVPs to perform user testing and iterate your vision based on early feedback.
“At Neurofit, we initially assumed we knew what our users needed for stress management, but our most successful features came from closely listening to user behavior patterns and adapting accordingly. Don't cling to your ideas and launch fast – as they're assumptions that are just best guesses until validated by actual customer data.” — Andrew Hogue, Co-CEO of Neurofit.
Mistake 3: Not checking the tech feasibility of your solution
Another startup mistake that can cause companies to go under is ignoring technology limitations, especially if they’re building an innovative solution for a rigid industry, such as healthcare or fintech. Ambitious founders are so eager to disrupt an industry that they forget that their solution can disrupt people who work in this industry unless it seamlessly integrates into existing workflows.
Security vulnerabilities, integration issues, interoperability challenges, scalability limitations, and other innovation deterrents should be addressed before actual product development. To check the tech feasibility of the solutions, startups can reach out to tech companies for technical due diligence and prototype development.
Mistake 4: Gaps in the team
Small business owners try hard to optimize the costs, and this optimization can sometimes lead to compromises in team skills and expertise. But if you’re developing advanced software, you require tech specialists with hands-on knowledge of developing such solutions — unless you want to deal with poor execution and a sub-par product.
To avoid getting into a pinch like this, startups should realistically assess the skills they need to bring the solution to the market. Along with the tech knowledge, you should make sure you have the industry know-how to balance innovation with regulatory compliance in your solution. Plus, a solid mix of technical and non-technical talent in your team will help you attract funding.
“One mistake I made early on was underestimating the importance of hiring the right people at the right time. Taking the time to identify talent that not only fits skill-wise but also shares the same values and long-term goals can save a lot of effort down the road. Now, we prioritize quality over speed in our hiring process, ensuring everyone contributes to the bigger picture effectively.” — James Hacking, Founder and Chief Playmaker of Socially Powerful.
But that doesn’t mean you must spend copious amounts of time and money on hiring talent. You can eliminate the cost and hassle of in-house recruiting by outsourcing solution development to a trusted tech partner.
Mistake 5: Poor cash flow management
Another startup mistake typically plaguing companies that are unprofitable in their early stages or from high-growth industries is the lack of strategic financial planning and inadequate understanding of the cash runway. Many companies get burned by the burn rate due to wasteful spending, underestimated expenses, or lack of financial discipline. Consequently, they fail to raise another round and sink into oblivion.
For startups, cash flow management is a high-stakes balancing act where they have to constantly monitor actual costs, create detailed cash flow forecasts, and optimize expenses. Startups should also invest wisely in talent, as hiring and expanding too quickly can become a death blow for a startup, considering the ever-evolving dynamics. To keep a tight rein on the finances, startups can hire a CFO or outsource financial management to a professional firm.
🔍 The downfall of WeWork, once a $47 billion space-as-a-service business, serves as a cautionary tale that demonstrates how a lack of sound financial management can lead to a headlong tumble. The startup went after an aggressive expansion strategy, opening new locations at a rapid pace. The growth required significant investments in real estate, construction, and operations, which resulted in a high burn rate, meaning the company was spending more money than it was generating. Unsustainable financial practices, among other things, ultimately led the company to a failed IPO effort in 2019 and bankruptcy in 2023.
Mistake 6: Mistimed launch
Hold onto the product for too long, and you risk losing the first-mover advantage and getting into an uphill battle against incumbents with greater scale. Launch too quickly, and you’ll cause cracks in the foundation that impede your growth later. But here’s the thing: there's no one-size-fits-all approach to launch timing. The key is to focus on the readiness of your product instead of watching the clock.
Here are the boxes you’d want to check before debuting your solution:
- Is your product concept proven to meet market demand?
- Is your revenue model sustainable and scalable?
- What is your marketing and sales plan?
- Does the product meet the defined requirements?
- Has the product been thoroughly tested?
- Do you have a team with the necessary skills and experience to execute your plan?
- Have you secured adequate funding to support your product development and launch?
"The right time to launch your product is yesterday. Get your product in front of customers as early as possible to collect valuable feedback. Launching quickly allows you to iterate faster, avoid over-engineering, and build a solution that truly fits your audience’s needs." — Patrick Stanislas, Co-founder of Taskerio.
If the answer is no to any of the questions, you probably need to revisit your product or product strategy. On the other hand, you shouldn’t sit too long on your first launch, perfecting each element of your solution and bunding every nth feature into it. The very first launch isn’t about delivering a flawless product; it’s about gathering feedback through a condensed MVP and iterating on your product.
Mistake 7: Falling into technical debt on your MVP to 1.0 transition
When startups build their first MVP, they try to do it quickly and on a dime. After cobbling things together without leveraging good coding practices, startups end up with a Frankenstein product, doomed to a short life. Without a solid, scalable architecture, that product inevitably starts to collapse as it gets more users. Technical shortcuts backfire, leading to defect cascading, stability issues, failed releases, and piled-up technical debt.
To avoid costly reworks and enable seamless scalability, startups should develop a growth-ready product from the get-go. Scalable architecture design, proven development practices, and native technologies will set up your product for growth beyond lighthouse users.
Mistake 8: Ignoring the red tape
Due to a lack of industry experience, startups operating in regulation-heavy industries such as healthcare and fintech may prioritize technology over legal and regulatory requirements. A complex web of global, federal, and state standards creates regulatory ambiguity that’s hard to navigate for fledgling companies, impeding innovation and exposing businesses to hefty fines.
🔍 In 2024, Cerebral, a mental health startup, faced $5 million in customer redress and a $10 million civil penalty as a result of HIPAA violation. The company failed to ensure the safety of private health information after sharing private health data on 3.1 million users with advertisers. Data security gaps and lack of clinical validation were among the reasons for the failure of another healthcare startup, the embattled Babylon Health.
To ensure compliance, startups must conduct a thorough and early regulatory assessment before product development to identify applicable regulations. Adopting a robust data security strategy, integrating compliance controls, and monitoring the regulatory landscape will help startups balance innovation and the red tape. A health technology vendor with hands-on experience in HIPAA, FDA, GDPR, PCI DSS, and other regulations can also assist startups in developing a compliant digital product.
Healthcare startups should also keep in mind that many regulatory bodies, such as the FDA and EMA, require sufficient clinical evidence to demonstrate the safety and efficacy of healthcare solutions before they can be approved for commercial use. That’s why we also recommend reaching out to all relevant stakeholders early to identify the data needed for approval or clearance and coverage decisions.
Mistake 9: Flawed business model
A pricing strategy is another tough nut to crack for a new business. Too many startups make the same mistake of either basing their business model purely on the competition or adopting a cost-plus approach where they add a margin to account for the overhead costs and generate profit. While market research is essential to gauge the competition and its modus operandi, competitive analysis shouldn’t be the only rationale behind your business model.
Understanding the value you provide to the end users and aligning your pricing with the perceived value is an optimal way to go when it comes to the business model. To understand customer value perception and validate pricing assumptions, startups should gather customer feedback through surveys, interviews, A/B testing, and other exercises. Along with identifying a value-based pricing strategy, startups should also make sure their business model is sustainable — i.e., it can handle increased demand without exploding costs.
“When choosing a business model, think about what will work for your long-term vision but also be flexible enough to change as you learn more. For us, we had to figure out how to combine technology with that human touch that’s so missing in our sector.” — Nirav Chheda, Co-founder and CEO of Bambi NEMT.
Mistake 10: Not planning for failure
A new business tends to focus mainly on the ideal scenario of hitting it big in the market without accounting for potential setbacks and pitfalls. As a result, when something goes awry, such startups do not have a backup plan and aren’t able to adapt or pivot their business idea. However, those businesses that are ready to fail often and fail cheaply can weather the storms of the startup landscape.
Developing a minimum viable product before investing heavily in development, adopting customer feedback, and conducting thorough customer research can help improve the startup’s resilience and pivot its way out of any pit.
Ensure your startup growth
No startup, however innovative it is, is immune to mistakes. But the lion’s share of these mistakes can be traced back to common pitfalls and avoidable errors like the ones mentioned above. While we can’t assist you with proper cash flow management, our team can provide expert guidance on technology-related challenges and make sure your digital solution adds to your startup's success instead of jeopardizing it.
