25 Tips to Prevent a Startup Failure

Tips to Prevent a Startup Failure. You probably already know that many start-ups fail. Some sources claim that the failure rate goes as high as 90 percent.

However, it’s not as bad as you may think: That being said, it is more difficult to run a start-up than an established business. Novice entrepreneurs have to handle a lack of funds, inexperience, lack of planning, and various other pitfalls that more established companies don’t normally have difficulty with.

To help your start-up’s chances, here are a few suggestions on how you can keep it from falling.

Tips to Prevent a Startup Failure

Craft a business plan
A business plan is essentially a blueprint for your business; it summarises your objectives and specifies how you will accomplish them. Without a business plan, your start-up won’t have any direction and wouldn’t survive long.

Fortunately, you don’t really need to create a lengthy and formal business plan (unless you’re looking for investors or aim to get a loan to finance your start-up). You can start by creating a basic one, which may cover the following:

Tips to Prevent a Startup Failure

The problem that your start-up aims to address.

The solution to a said problem (i.e. your product or service).

Your target market and how to market to them.

Costs involved in producing the product or service (including operating expenses).

Responsibilities of key people in the start-up.

Steps on how to achieve the start-up’s goals.


Target a niche and dominate it
No company can offer everything to everyone; instead, they provide products or services to specific niches. Why? It allows companies to focus their efforts, be more profitable, and establish themselves as experts in their field, among other reasons.

Remember: you can’t make please everyone. For best results, aim for a smaller-sized niche that you know for sure you can satisfy, and then work your way towards being the best in that segment.

Determine the need beforehand
If you want to build a product or service, make sure there is a demand before proceeding. There have been way too many businesses that failed because they created a product or offered a service before recognizing who their customers are and if these people are interested in it, to begin with. If your target market isn’t interested in your product or service, your startup will most assuredly fail.

You can also create demand for your product or service (like how Apple created the demand for the iPad), but be wary of the risks involved.

Tips to Prevent a Startup Failure

Differentiate yourself from the competition
A unique selling proposition (or USP) is defined as a factor that differentiates a product or service from the rest of its competitors. This USP could be anything: more value for money; a convenient location; a trademarked technology or process; or even superior customer service.

Sometimes, however, you can simply take a different approach to how you’re promoting your product or service–something that your competitors haven’t done before.

Without a USP to set yourself apart, people have no reason to buy what you’re selling. If this happens, your business is pretty much done for.

Focus on providing value
Customers buy your products or services because they believe it gives them value (e.g. it solves their problems). Once you stop providing value, people will no longer buy from you.

For instance, let’s say you sell a smartphone security app that asks a one-time fee, which you later change into a monthly subscription. This means customers will have to pay more to continue using your app, thereby reducing the value you provide.

Your estimates may have initially shown that subscriptions will increase your income, but you didn’t consider that the higher cost of ownership may cause customers to stop buying your app. The lesson: customers will willingly give you their money, provided that you give them value.

Manage your cash flow
Cash flow refers to the total amount of money that is transferred into and out of your company. Having more money go out instead of in isn’t necessarily harmful; it may indicate that your business is growing. However, a chronic occurrence of negative cash flow means you’re leaking funds or mishandling credit, which may eventually cause your start-up to fail.

See to it that you prioritize cash flow; any deficiencies would prevent you from properly managing your overhead. Here are a few tips to avoid negative cash flow:

Organize your financial records, particularly your invoicing and collection. This allows you to stay well informed on how much each customer owes.

Tips to Prevent a Startup Failure

Perform credit checks before giving customers credit. If you find out that a potential customer has poor credit, consider asking for a deposit to mitigate your risk.

Match credit terms between your suppliers and customers. If suppliers, for instance, require your payables to be settled in 30 days, make sure your customers are given the same terms as well.

Apply for a credit line to help you cover important expenses in case of low cash flow.

Increase your revenue by raising prices, offering discounts, broadening your market area, asking customers for referrals, and reducing your expenses.

Ask your accountant to forecast your start-up’s cash flow to predict surpluses and shortfalls and learn how much funds you’ll need in the future. More importantly, discrepancies between actual and estimated cash flow may allow you to detect possible financial leaks.

Keep a tight leash on your outlays. Spend only if you’re certain that it’s going to put money in your proverbial pocket. Limit your expenses to the start-up’s most pressing and vital needs.

Create systems that grow your company
Running a start-up is hard work, but you shouldn’t do everything by yourself. With this approach, you essentially become the business, which may seem good at first, but it’s ultimately counterproductive. To earn more, you need to increase the number of hours you put in; but since you have only so much time, your start-up’s growth will be stunted.

This puts your business at risk of failing when it encounters a crisis.

For your start-up to grow and survive, you need to create systems that will continue your business without you directly running it. Simply put, these systems are guidelines and procedures that your employees can replicate without your involvement.

What kind of systems are we talking about? Examples include:

An accounting system to monitor your income and expenses.

A payroll system to calculate employee income tax, superannuation, and salary.

A customer relationship management system to keep track of your interactions with clients.
With these systems in place, you can delegate the responsibility to key employees and your business will continue to function just as efficiently, even during difficult times.

Understand how everything works
It’s not enough to know only about what your start-up mainly does; you’ll need to have a good working understanding of a wide variety of topics including the following:

How finances work. You don’t have to be an expert or a CPA; you just need to understand basic bookkeeping, balance sheets, pricing, and other fundamentals.

How to negotiate. Having this skill lets you get more out of deals and enjoy more profits for your business.

How to communicate and be more persuasive. With this skill, you’ll be able to deal more effectively with employees, customers, suppliers, creditors, and investors; get more out of deals; and gain more profit for your business.

How to plan. Running a business requires good organization skills; you need to stay on top of your inventory, legal obligations, daily operations, accounts receivables, and various other administrative concerns.

How to lead. Managing people isn’t something everyone is born with, but if your start-up has employees, you’ll need to know how to motivate, empathize, and listen to your staff.

Tips to Prevent a Startup Failure

How to promote your start-up. Without taking advantage of the proper marketing channels, you won’t be able to generate new business.
Hire the right people
As mentioned above, systematizing is crucial for your business to continue operating even without you. However, systems wouldn’t work–no matter how efficient they are–if you employ the wrong people to carry them out. In fact, your business stands to waste a significant amount of resources for wrong hires.

For your business to succeed, you can’t just get anyone to do the job; you need to hire the right workers. Here are a few suggestions on how:

Determine the requirements judiciously
This may sound basic but it’s important to carefully define the requirements for the job–the essential skills, amount of experience needed, and preferred personal qualities so that you know what you’re looking for when screening candidates.

Test skills relevant to the position
Focus on testing the actual abilities needed to do the job properly. For example, if you’re looking for a C# programmer, then ditch the grammar quizzes and design a rigorous exam that would put the applicant’s skills to the test.

Ask the right questions
The right questions matter during interviews because they help you assess whether an applicant is suitable or not. Focus on questions that verify the candidate’s accomplishments and experience. Ask how each applicant fared in their last performance review and contact their manager to corroborate what they said.

Interview at least three candidates for the job
It’s important to interview several applicants so that you can get a wider selection to choose from, compare them, and pick the best. This increases the likelihood that you really would hire the ideal person for the position.

Have each applicant interviewed by at least three different people
Opinion can vary on who is the right candidate for the job. By having at least three different interviewers, you get more than one perspective. This approach may be a bit more time-consuming but it helps you make the right choice, which is especially critical for start-ups.

Don’t settle
It’s entirely possible to realize that all your applicants are unsuitable. If this occurs, don’t simply settle for the best in the bunch. When you hire someone, make sure the person is right for the job.
Learn how to sell
Many just don’t realize it yet, but everyone is in sales. Applying for a job? Sales. Asking someone to go out with you on a date? Sales. Convincing someone to invest in your business? Also sales. However, not everyone has the ability to sell, even among entrepreneurs, whose success depends largely on it.

If this is something that you’re having problems with, then see to it that you learn how to market yourself and your business. You can start by reading up on sales and marketing to study the basics. To make the learning process easier, consider finding a mentor as well.

Make your customers happy
To help safeguard the survival of your start-up during difficult times, ensure that your existing customers are happy. Consider the following statistics:

Having a 2 percent increase in customer retention has the same effect as reducing expenses by 10 percent.

About 96 percent of unsatisfied customers don’t complain, but a whopping 91 percent of them will leave.

A customer is four times more likely to transfer to a competitor if they have a service-related problem (versus price- or product-related issues).
So how do you make customers happy? There are a number of ways but it generally boils down to giving great service:

Talk to them about what they want and provide it.

Ask them if they’re happy with your product/service and sort it out if they’re not.

Act quickly to resolve complaints.

Entertain them while they wait.

Go the extra mile.

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