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Four mistakes that make startup projects fail

Any investor wants to see scale. Look for ways to apply your business idea more broadly.

Four mistakes that make startup projects fail
[Day Of Victory Stu /AdobeStock]

Research suggests there are around 70,000 startups operating in the U.S. That’s about three times more than the next leading countries combined. At first glance, that’s a huge number. But 20% will fail within a year, 50% within five years, and 70% within 10 years.

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I have studied and consulted for dozens of startups in my life. Some of them failed, some became successful, and some of them even merged into my holding company. This is a natural selection in the startup universe. But some teams cause their projects to fail by repeating the same typical mistakes. Let’s talk about those mistakes and how to avoid them.

MISUNDERSTANDING DEMAND

Startups will continue to fail in 2022 due to a lack of understanding of their customers and their needs. Thirty-five percent of them fail for this very reason.

Young entrepreneurs go to investors with full confidence that everyone needs their product. They see market research as a waste of time. But reality knocks them down. Those who don’t spend a month or two interviewing potential users before launch will end up doing it six months later, and they will pay a much higher price.

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In-depth interviews are a reliable method to help you determine whether your audience needs your product or service. A heart-to-heart conversation will reveal someone’s experience in a way long questionnaires never could. Do people really have this need, what do they use to fulfill it, what do they like and dislike about existing solutions?

The irony is that this is the best way to reduce risks and costs, and it requires minimal input resources at the start.

LIMITATIONS OF A BUSINESS IDEA

Any investor wants to see the scale. Look for ways to apply your business idea more broadly.

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Last year, I talked with one Ukrainian startup that was engaged in the selection of a carrier for the transportation of grain crops—a kind of Uber for cargo. The idea is great, the market is there, the potential is huge. The startup is already more than three years old, but the profit is quite poor. They applied for a grant from the Ukrainian Startup Fund but did not score the required number of points.

What seems to be the problem? It’s difficult to call an idea that solves one problem in a particular industry in a local market “really great.” That is what I told them. Scale is missing. Why limit yourself when you can cover all shipments, from crops to private cargo?

Look at the market demands in your category. Then look in neighboring ones. Often, their needs can be met simply by copying an existing business model. If it turns out that all the needs of your potential customers in a particular segment are covered—which is rare—look for problems in other segments in the same category, the same direction. The next step is to request other categories.

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And this brings us back to the previous point: To connect a product with a consumer, you need to deeply understand the consumer’s demand but have a broad view of the problem.

TECHNICAL INCOMPETENCE

I often see interesting projects with no technical expertise whatsoever. For example, there is no clear description of functionality, priorities, integrations, or user roles. These are typical holes through which project money flows.

Everest, an American startup with Ukrainian roots, launched at the end of 2012. It is an application that allows users to set goals for themselves, track their progress, receive motivational messages, and support others. The product showed great promise: it raised $2.2 million, and even Paypal co-founder Peter Thiel was among the investors.

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But by 2015, the team shuttered the company—largely because it lacked a strong technical unit. After launch, it turned out that the application was full of bugs and annoyingly slow. The creators themselves said the code was so bad they were often tempted to start from scratch. Instead of developing the product, the team got bogged down fixing bugs.

Of course, a handful of startups launch with a bottomless well of budget. Therefore, development is outsourced. If there is no money for a good technical contractor, the teams go for the best price. In such cases, it makes sense to hire those who have had experience with similar products. Most likely, they have already made mistakes and fixed them with someone before you.

LONG SWING

This problem is often clearly visible after the first investment. The team loses focus. It shifts from the core proposal to other issues, often of lesser importance. Managers rent a large office downtown, hire an enormous number of employees, and start looking for what else can be improved. Then starts the long development period. Companies spend a lot of time and money trying to make a product that covers every need.

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Don’t try to create a 30-bladed Swiss Army knife right off the bat. Work out a couple of key functions and introduce your product to the market. The rest is up to consumers. You just have to work out their feedback correctly. Then, even if the product does not work as it should, you will have time to fix it.

And finally, it’s always worth remembering that each business story is unique. You will have your own path, experience, useful contacts, emotions, and—if everything works out—money. Yes, financial collapse is also possible, along with a ton of stress and a mop of gray hair. Sometimes they replace each other. In any case, it will be exciting.


Yura Lazebnikov, Managing partner of TECHIIA Holding / Investor in Tech innovative projects

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