This article was originally written in cooperation with the online magazine EU-Startups
The process of building a startup could be described as a journey towards a specific destination. On your journey, you will meet many crossroads where you will have to decide which way to go. These decisions may be crucial in finding your target location; in fact, these decisions could be the difference between a successful journey and a failed one.
Similarly, these crossroads throughout your startup path could help you reach the maximum potential of your project. So, how do you avoid common mistakes and make the best decisions?
In this article, we will discuss the mistakes that we have often seen founders make during their decision-making process before building an MVP, which can cause fatal damage to the whole business.
These are the same guidelines advised by Soulmates Ventures, which should help every founder choose the right route, helping them to finish their startup seed-stage journey successfully and move to the next one – the acceleration process.
But first of all, there is one big requirement that needs to be settled first, otherwise, the next steps in your startup journey may be useless: find the right team. The team is the building block, the core root around which all other agendas of startups grow like branches from a tree. When the tree is strong, the branches grow strong too, supporting the tree and making it even stronger at the end of the day.
Now let’s move onto what you came here for. Mistakes to avoid:
1. An insufficient verification of the product’s market need
Even though startups are not generating profit at the beginning of their journey, we should not forget that startups are, after all, for-profit organizations. They need their paying customers and economic profit to survive, or to be attractive for exit partners, and even more for fulfilling their potential of positive impact.
In the research made by CBInsights, the ‘no need for the product on the market segment was the number one most cited reason why startups failed, at 42%.
Startups can have a great team, technology, product design and marketing, but if your product is not solving a pain point in the market in an economically scalable way, these things don’t matter. This is the number one factor every startup needs to figure out.
2. Badly managed iterations with customers during product development
The development of the product should be always interlinked with acquiring customers, gathering their feedback and making continuous iterations based on their feedback. Don’t lose your perspective by focusing on upgrades that will be best for you; instead, make the upgrades that will be best for the customer.
It’s important to be interested in customers’ expectations about the product, the pricing system, the features, the way of delivery, etc. Do your best, listen to these people and build your product around their thoughts. Otherwise, you could end up with a great product that nobody besides you will buy.
3. Wrong or missing definition of paying customer
One of the most difficult things in terms of your product is to define the right paying customer. Once you figure that out, it will help you to better navigate other tasks. Based on your knowledge about your customers, you can build the best possible pricing system, set the right level of communication and target your customers more efficiently.
There is only one correct price for your product. This is the maximum value that your customer is willing to pay for the product. Identifying your customer will help you find such a price, will help you to know your competitors and will allow you to make the right product iterations.
Take such a price and compare it with your costs of the product. When we are talking about the highest possible price, you cannot increase it. If this does not match up with your product costs, decrease them. If this is not possible, close the company. In the world of startups, it is sometimes unclear how disruptive technologies will work. In fact there are many cases when startups have had to close their doors because their technology was not developed enough to be economically scalable.
4. Incorrect or irrelevant financial plan
You will survive the first month with an easy Excel table checking cash-out, and available cash in your account. Once you start to hire the team and start spending money on product development, you will need a more sophisticated tool for the financial management of the company. You should always know what your cash runway is, and how long you will survive with the current money.
In the research, reason number 2 that startups ran out of cash was poor financial decisions – with 29% of respondents failing for this reason. The startup Zirtual was forced to release 400 employees overnight because of bad financial decisions and miscalculations which, according to co-founder and CEO Maren Kate Donovan, was due to not hiring a CFO.
5. Late building relationships with investors
Mistakes made by a lot of startups related to investor relationships are actually quite simple. They are going for investment too late. They want to build something, to have something tangible to show to investors. Yes, that is the best-case scenario. But look at your runway described in the previous point. Will you manage it on time? Do not underestimate the time from pitching until getting the investment into your account.
The whole funding process, from the first presentation to due diligence, to closing the deal, is not possible within a few days. It can take months to pass through all the stages.
Additionally, don’t be afraid to ask or think that you don’t need the help, that it is proof of weakness. That is not true. When you grow and profit, investors will as well. It’s a win-win situation.
Learn from any mistakes and correct quickly
If you do not proceed with the market analysis of your product correctly, and you do not have a problem-solving product, this will show eventually to both your team and your investors. On the other hand, if you follow all of the steps mentioned above then you will be equipped with the best possible tools, helping you to successfully find your customers, attract the attention of investors with a well-prepared financial plan, and you can grow and profit with all the right cards in your hands.
Remember that not everything is in your control. This is natural, as the startup ecosystem is a living organism and many factors can influence the waters. But, what you can do is the maximum you can with the resources available, and be as prepared as possible. Those are the parts you can and should control.