It is no secret that over 90% of tech startups fail, especially in their first years. Nonetheless, such businesses can be pretty exciting places to work, whether you own a tech startup or just happen to work at one.
A tech startup is one of the few places in the business world where you will typically create new technology people need. So, you know you are dealing with something unique and thus take tons of risks daily.
Many startup founders have big dreams of becoming the next Microsoft or Tesla. Yet others just want to build and sell. Either way, the industry can make you feel like you’ve “made it” pretty soon. No wonder tech startup founders make many mistakes that bring their companies to a close quickly.
Here are some of the most common reasons tech startups fail, plus how you can avoid them.
1. Mismanaging Initial Cash Flow
Contrary to what many startup founders do, the initial funding you receive for your tech startup is not to treat yourself. Yet, many founders still just waste it away. You do not need that fancy coffee machine, office, or extravagant employee gifts.
Remember, when acquiring the funding, you had a plan for it. So, ensure you stick to that plan and not get too excited, as many do. Otherwise, you might quickly run out of money with nothing to show for it and thus eventually close. A best practice is to hire a financial manager to help you make the most out of the funding.
Matt Wooldridge, the successful founder of InvisionRoofing, is a good example. He pointed out that the team focused on acquiring tools and great talent with the first bits of funding. That way, they improved their operations quickly and could provide quality service to their customers.
So you can avoid wasting your funds by focusing only on things that enhance productivity and help you achieve your short and long-term goals.
2. Not Utilizing Remote Workers
Many tech startup founders still carry the stereotype that remote workers are not as efficient. After all, you cannot control what they do with the time they are “supposed to be working”.
But, using remote workers will give you access to qualified talent at competitive prices that you probably wouldn’t find in your local area. That’s especially the case if your base is in an expensive city.
Failing to utilize this large pool of employees may be setting yourself up for failure with the huge costs of hiring local workers.
“We found it more cost-efficient to tap high-quality tech talent from Asia to help us develop our services. With them, we didn’t need to invest in long training, larger offices and the like,” George Mitsov of ProxyEmpire says.
With working from home now mainstream, you no longer need to have a full-time in-house physical team. Save that money and hire experts from anywhere to work remotely if possible.
3. Failure to Develop a Viable Business Plan
Hustle is NOT a business plan; however much you might enjoy the adrenaline. You will need much more than that to attract funding and retain top talent. But too many tech startup founders remain in the hustle corner for way too long.
Rather than create a proper business plan, you establish an unsustainable hustle culture that seeps through the whole company. That quickly sets you up for failure by affecting your credibility and potential by stakeholders.
Successful founders tout a viable business plan as critical to building confidence among stakeholders. Martin Seeley of MattressNextDay stated that “the team had clear plans and strategies for every year of operation. That helped us retain some of our top employees. Our investors also felt more comfortable providing more money.”
Best practices suggest you regularly update your business plan to account for unforeseen occurrences.
4. Failure to Strategize For Scaling
Many tech startups fail at the point of scaling. After the initial cash flow, the tendency is to stay lean and proceed with caution. Not only does this affect your general operations as a startup, but you might also lose your team’s confidence, leading to high turnover.
Instead, you will want to adjust and scale fast. That comes with challenges, but you can always adopt tried and tested methods. For example, consider hiring a fully remote freelance team for the needed talent and then transition to full-time workers when possible.
Scaling too fast or too slowly is a common cause of failure among tech startups. So take time to analyze your current resources and adjust your operations proportionately.
5. You Have Not Defined Your Company Culture
What does your tech startup stand for? Unfortunately, too many founders cannot answer this question accurately. That is, you have an undefined work culture and foundation at your company.
Such a situation is dangerous because it makes it challenging to communicate effectively across the company and establish a good value proposition.
So, as part of business development, ensure you define and set your culture, whether it is a focus on climate change, diversity, etc. Then communicate this across all levels of the startup, from the designers to top leaders. In turn, your people will be able to communicate well to buyers, prospective hires, etc.
CEO at CryptoMonday, Jonathan Merry, says, “At Crypto Monday, we remain dedicated to providing accurate crypto information to our audience to help them make good decisions. That applies to all our authors, editors and technical staff. So our people always know what to expect.”
6. You Misinterpret What Your Staff Want
A common tech startup failure is assuming that all your employees are interested in the same things. True, millennials now make up a large part of the workforce. And unlike older generations, they are drawn by perks like shorter work weeks, extra-curricular activities at work, nap times, etc.
However, this demographic is also widely distributed. The older cohort, approaching 40 and probably with kids, will likely have varying interests. For example, what are the chances they will also be interested in “office game-time” over health insurance?
So, failing to recognize and cater to these different needs might lead you to failure as you might start losing top experienced talent.
Therefore, to avoid failure as a tech startup founder, find out what your people are individually interested in. It could be through a survey or one-on-one chats. Then, create solutions that work for most people.
Final Thoughts
You do not have to go down the same paths to failure as other tech startup founders. These strategies will help you grow your business and join the fortunate 10% that makes it to the fifth year.
Are you already making some of these mistakes? All hope is not lost. You can always make a U-turn and get yourself out of that hole.
