Top 3 Reasons Startups Fail (and How to Avoid Them)

By September 23, 2016For Companies

In the media, the norm is to focus on the success of startups – not the reasons startups fail. Funding stories break on a daily basis, whilst the shutting down of companies happens much more discretely. It’s unsurprising that we gravitate towards celebrating accomplishments, but at the same time there is much to be learned by examining the mistakes that are made.

march2017Earlier this month, Jobbio’s careers and networking event, EXPAND London, brought together a diverse group of speakers from London’s tech ecosystem. They all gave practical advice: how to reach a million users, how to create a mission-driven team, how to become a global brand. Whilst they shared the do’s that has led to them to become “unicorns” (TransferWise, Blippar, and HelloFresh were all present), they didn’t ignore the don’ts. According to experts from Stripe, Pinterest, Founder Centric, and busuu, these are mistakes that prove to be fatal to a startup – and how you can avoid them.


1. Acting like a big company – before you should

“There are so many mistakes a startup can make”, Rob Fitzpatrick (co-founder, Founder Centric) told us in an interview after his keynote. “So it’s not making mistakes that kills startups. It’s getting too big, too fast. That’s when your mistakes become fatal”.

If you’re young and your expenses are cheap, you’re basically immortal as an entrepreneur. So the big mistake is getting too big, too soon. – Rob Fitzpatrick

On this topic, Buffer wrote a very candid article about “moving into a house they couldn’t afford” resulting in burning cash rather than having a positive cashflow. In summary, be wary of all the things that may come with getting too big, too quickly, such as over-aggressive growth, an appetite for risk, and over-enthusiastic hiring.

Watch more interviews from EXPAND London by clicking here.

2. Thinking that fundraising automatically = success

Raising funds is always heralded as a success and rightly so, because of the extremely tough nature of the process as well as the opportunities that extra cash can afford. However, as Bernhard Niesner (busuu’s CEO and co-founder) reminded audiences during his keynote, fundraising doesn’t necessarily equal future success.

He said: “If you need a lot of cash, it might mean that you are capital inefficient and you constantly need to raise more funds. And if you raise a lot of money, you have to spend a lot of money”.

Many startups fail after closing their funding round because they mistakenly slip into a more complacent mindset. On the other hand, without large financial backing, you are forced to be careful with capital spending. Ultimately, no matter how much cash you have, always continue to spend wisely.

And don’t forget that sustaining your company in other ways (bootstrapping in the early days, through your revenues later) can also lead to building a stable and successful business, even if it takes more time and doesn’t get you all the eyeballs on TechCrunch.

Celebrate your fundraising like you would celebrate your mortgage. It comes with obligations. – Bernhard Niesner

3. Not sticking to your mission

With a limited number of resources at a startup, it’s crucial to remain focused and dedicated to the most important tasks at hand. The cumulative effects of being waylaid could be deadly. But distractions come in many different forms, and so sticking to your mission is sometimes easier said than done.

To combat this, Alastair Cotterill, Head of Creative and Brand EMEA at Pinterest, shared a simple piece of advice to live by. Always ask yourself: “Is what I’m spending my time on right here, right now, the best use of my time? Is it helping the company achieve the mission?” If it’s not, just don’t do it.

Don’t get caught up in the bull**** that swirls around. – Alastair Cotterill

James Allgrove (Head of Growth UK, Stripe), who spoke on our panel alongside Alastair, added: “Be ruthless about how you prioritise what is important. You can spend all day trying to do everything, but this is where vision and mission comes in. Does it get you closer to that point, or not?” If it doesn’t, just don’t do it.

Alastair speaking on the Building a Global Brand panel at EXPAND London

Alastair speaking on the Building a Global Brand panel at EXPAND London

EXPAND London returns next March with more practical insights, incredible speakers, and tech startups looking to hire. Don’t miss out on attending, register your interest today

Reasons Startups Fail

Author Jobbio

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