About half of all companies in the United States fail in their first five years of operation. For startups, around 80% survive the first 12 months. With the odds stacked against you from the start, how is anyone expected to create and build their tech company from the ground up and keep it running for many years to come? There are many reasons why a tech business might fail, but there are also many things you can to do mitigate these risks. Here are five pitfalls to watch out for and how to avoid them.
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Investor and Company mismatch
Securing capital from investors is one of the earliest stages of setting up your company but can also cause one of the most difficult, some might say terminal, issues to bounce back from. It’s important that you find an investor that shares the same vision as you otherwise you’ll suffer from mission drift which almost always spells danger for your efforts to get your company off the ground.
“Outside investment is really about partnership and not about investment,” says James Lloyd-Townshend, CEO of Frank Recruitment Group. “The right backing can effectively open doors and enable you to take advantage of the enormous opportunities that are out there. The big question to ask yourself is do you want to take on an investment partner or do you want to put non-execs on your board?”
Make sure you do your research about your potential investors. Analyse how they have treated you throughout the fundraising process and how any issues or concerns have been approached and addressed. This is a good indication of the type of relationship you will have with your investor.
Another good idea would be to talk to some other people that have received money from the same investor and ask them what their experience was like. Were they understanding and help out when things got a bit dicey? Did they jump ship at the first sign of uncertainty? These are all characteristics you need to be aware of in an investor.
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Understand your finances
A financial plan should be a pivotal part of your business, not an afterthought. You need to think about exactly how much money you have coming into the business and how much is going out. What do you need to break even? How much are you paying yourself or your team as a salary? How much does your product cost to make? When will you hit cash-flow break-even?
You don’t need to be a financial wizard, but understanding the basic cash-flow situation of your business means you know when trouble is brewing and how much further investment you will need.
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Hiring the wrong team
According to recent studies, 46% of new hires tend to fail within the first year of the business. Hiring the wrong people can massively upset either the dynamics of your team and stop it from performing effectively. There are two important factors when it comes to hiring in the technology sector: Hiring for technical knowledge and hiring for personality. Both elements are just as important as each other, although some would argue that technical skills can be honed or taught whereas changing someone’s attitude is significantly harder.
You can use tools such as an ILU skills matrix to audit the skills you currently have covered and identify areas where you are either lacking, or that need developing. Surround yourself with people who are good at the things you’re weak at.
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When you’re hiring, make sure that new hires understand your rate of innovation and buy into your vision and mission. As a startup, you’re typically a small, agile operation which means that you have the potential for a high rate of growth. In these types of situations, you need people who are willing to wear many hats, who are quick to adapt and who are willing to put a lot of effort in, especially in the earlier stages.
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Not cultivating company culture
Thinking about what kind of culture you want to be associated with your company is a very important process which is not to be taken lightly. Your company culture is a reflection of your beliefs, worldview, vision, and your mission.
You’re obviously free to embed whatever culture you want, but a positive working culture should allow people to feel valued, listened to, involved, and overall feel included in the company.
There are clear benefits to having a strong company culture. Especially true of startups, a well-cultivated company culture can set the tone for your organisation going forward. Employees who buy into the culture will start to instil the mindset in their day-to-day tasks. It’s a great way of setting a clear direction and sense-checking to make sure the work you are doing is meeting those values.
There is also evidence to show that a good company culture has a direct impact on productivity and staff retention. A robust and appealing company culture also makes it easier to attract the best talent in your market — when people feel like they belong they’re more likely the stick around. This ultimately saves you time as it keeps your talent happy and cuts time when it comes to staff turnover, retraining, and building camaraderie in your team.
Finally, corporate culture adds to your overall brand identity, which is essentially your reputation and how people outside of your organisation view you. Build a positive company culture and your reputation and the view of others of your organisation should also grow.
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Not telling your story
“If you build it, they will come.” This misnomer, commonly attributed to Kevin Costner’s character in Field of Dreams, is sadly no longer true. The act of just creating something and waiting for flocks of fervent early adopters to find you and encourage others to buy in just doesn’t happen anymore.
In tech especially, the mindset is that you make something and let the quality speak for itself. But if you do that, you’re very much only operating inside a small bubble. You’re not telling your story. Having a website is mandatory, having a robust PR strategy is necessary to spread the word of what you’re working on, and operating with an audience first mindset when it comes to any external communications is vital. If you’re putting content out there that your audience isn’t interested in then they’re not sharing it and you’re missing opportunities.
Be wary of giving too much information out too. A recent bit of news from within your company might be of interest to your staff, but is it of interest to anyone else? If not, that specific piece of content might make a better social media or blog post than a press release!
