6 lessons from failed startups and how to avoid them

They say there's a lesson in every defeat.

So, if you start a business and fail, you’ll learn valuable lessons. After all, that’s what 90% of startups do: fail. (According to research by Startup Genome, about 90% of all startups fail, 10% of them within the first year.)

“Failing fast” is still a horrible way to learn, though. At best, it’s a consolation prize, but a poor one given the ordeal you’ll undergo (not just financial and time loss, but the emotional impact, including stress and guilt). 

There’s an easier way to learn.

Instead of learning from your own expensive mistakes, why not learn from the mistakes of others - for free? Since so many startups fail, you have an unlimited amount of data to draw conclusions from.

Here are the top six lessons that seem to be recurring…

It’s common for startup founders to rush out and hire just about anyone. They can’t afford high salaries, and since a small business lacks the hierarchical structure of a big corporation, founders may feel like they don’t have much to offer in terms of career progression. 

However, this is the wrong way to go. You always have something to offer, and when hiring help, you’re not fighting nearly as big of an uphill battle as you think. A young enterprise can offer people a chance for quick advancement. 

You can still attract people with potential, recognise their strengths and prepare them for leadership positions. 

First, you need to establish trust - in your and in the future of your business. It’s irrelevant that you’ve promised them they’ll be a CFO in your enterprise in five years if they don’t believe your business will still be around after that period. 

You need to start delegating tasks and responsibilities early on. Micro-managing sends a message that you don’t trust your team.

Moreover, investing in tools like innovation management software to streamline processes and foster collaboration. Such tools can help capture and develop ideas, manage projects, and improve communication within your team.  

Key aspects also include providing feedback and setting clear expectations. These help your team understand their roles and responsibilities and how their contributions align with the overall business goals. Regular feedback sessions create an opportunity for mutual understanding and improvement, enhancing trust and performance.

2. Don’t assume how the product will be used

People make assumptions all the time, often because of faulty data. 

There are instances where you make a product, and it’s so clear what it will be used for. Sometimes you'll get it wrong.

For instance, you may make a video, record it, and share it online, only to find that most of the audience that would interested in your video, content, or product speak a different language. (Luckily, you can now translate videos automatically using this tool.)

One great example of a faulty assumption is Google Glass. People assumed that people would love to wear a computer on their faces. This way, they would have access to augmented reality and generally enjoy a more convenient experience. The idea backfired because of oversights early on. First, privacy concerns and being recorded without your knowledge are significant fears. Then, there’s the social acceptance of the trend, which wasn’t that high.

Keep in mind that it doesn’t always have to be a negative thing. Remember My Little Pony, a hugely successful series and a cultural phenomenon amongst adults - not the original target audience! The same happened with Segway, which was meant to replace cars in urban commutes. Both of these trends succeeded, just now how their creators intended.

4. Don’t be too quick to assume success 

Premature scaling can hurt your business. 

Let’s say you do well for a month or two and decide you’re due an expansion. So, you hire more staff and move to a bigger office space (which has higher rent and higher monthly utility bills) to accommodate your growing team. Then, the next month, it turns out it was just a fluke. It was a temporary, potentially even a seasonal bump, and your business is back to where it was.

Now, you must fire people you can’t afford to keep on the payroll (because there’s no work for them) and leave the large office in the hopes you can still afford the small one. Even if you can do it right away, you’ve just wasted money on two moving processes.

The bottom line is that, as a new business owner, you may struggle to tell the difference between signs of real growth and a fluke.

Therefore, pick temporary solutions until you’re 100% sure that the success is there to stay, and seek advice from experienced entrepreneurs before you begin putting your scaleup strategy into action.

In a competitive market, your small business will soon be left behind if you can’t keep up with your more established competitors. This is why marketing budgets need to be flexible - they adjust to consumer attitudes and trends, as well as industry and economic conditions.

When launching a product or service, one of your first objectives is to announce it to the world - you can’t do that without marketing.

People will notice when you decrease your marketing budget. This is harder to hide than you think, and the outcome may be a serious dip in reputation and website authority. 

You may review your marketing plan, but cutting expenses should never be your go-to solution.

6. Know when to pull the plug

Sometimes, knowing when to pull the plug on your business can save your future.

The list of successful people whose first few business ventures failed is incredibly long and impressive.

So, when do you quit? 

If your business is consistently losing money (past the first few months when it’s expected for it to lose money), you want to call it a day.

Insolvency is probably the biggest indicator that your time for that particular business is up. But it doesn’t mean that you’re finished as an entrepreneur!

If there’s a lack of demand or too many operational inefficiencies to fix, you may consider calling starting over. Or, if new regulations come into effect in your industry, this could put more and more burden on your business until you can no longer make ends meet. If that happens, try something else.

Sometimes, knowing which battles not to fight is more important than any tactic.

Learn from the mistakes of others to save yourself from failure

You can learn from mistakes, but the mistakes don’t have to be your own.

Learning from other people’s mistakes is far cheaper and more efficient. Above all, it’s safer and more consistent. It shows that you’re willing to utilise the data that you have available. It allows you to make data-based decisions in order to drive your business forward.