We love to hear about the latest start-up success story. Knowing that someone was able to build something from nothing gives us hope that we can accomplish the dream as well. However, not every start-up founder makes it to the finish line. More often than not, early stage start-ups fail before they even get off the ground – most of the time, due to the same big mistake.
What experts noticed through their experiences and what we may have seen at start-ups that we are familiar with, is that, in general, there are three types of start-ups founders. First, there’s the experienced entrepreneur who has been down the road before. They know what process works and their companies have a higher chance of success.
The other two types of entrepreneurs, however, make the wrong choices simply because they don’t know what it really takes to get a start-up running. Here’s how they typically make start-up-killing mistakes:
- The newbies
These are the start-up founders who have just graduated from college and are ready to try their hands at entrepreneurship. They’ve scrimped and saved, and with the help of their family and friends, have enough money to get started with their idea. At least they hope it’s enough.
These entrepreneurs can’t overspend. They have to work with the budget they’ve scraped together, which means getting things done as quickly and efficiently as possible. On the one hand, this encourages them to run a lean company. They know if they spend too much in the early stages, the start-up will never survive.
However, they can also be scared to spend money on things that are ultimately very important to start-up success. These inexperienced founders might have heard about the agile start-up process, but they’re skeptical of the methodology. To them, running repeated experiments through iteration seems unnecessary or wasteful. They don’t understand that iteration is the difference between success and failure when a start-up first starts out.
Instead, they work on producing one version of their product quickly and inexpensively. That means taking a huge gamble that their end product will have any market appeal.
What these entrepreneurs don’t understand is that the agile process isn’t really expensive and it pays much higher returns. With this process, small aspects of the product are developed and tested during each step of the process. You create, release, and see how the market responds. The results will either validate your product or help you adjust appropriately. Following this process increases the odds that the end product will be market fit.
- The established business person
Over the past few years, we’ve seen more and more of this type of entrepreneur. These are the founders who have had a successful career – typically in the corporate world – and are now ready to create their own company. They’ve accumulated industry expertise and money to self-fund their start-up.
These entrepreneurs have saved enough to have more flexibility in their budgets. However, their years working in a traditional company can play against them if they try to run their start-up in the same manner. If they move at the same slow, bureaucratic pace, they’ll get nowhere.
They spend time and a lot of money getting all their ducks in a row before developing their product. They focus on hiring the right team, creating a strategy, and countless other small details that aren’t important for early stage start-ups. Then, when they’re finally ready to begin developing, they’re running low on money.