7 Deadly Sins That Are Killing Startups

By Gil Gerretsen

The world is constantly changing and one trend is that more new businesses are being launched every day. However, within a year or two, most hit a deadly growth ceiling (plateau) they cannot get past. Following are "seven deadly sins" that cause what has become an almost universal experience. If you see your business in even ONE of these, take action quickly to avoid your demise!

1) Self-Centered: A large number of new businesses launch as a one-person enterprise. Most have not thought through how they will grow their business beyond themselves. They have no clear vision or path to scalability. As a result, these entrepreneurs have sentenced themselves to a life of unending hard labor with restricted freedom and wealth potential. To solve being self-centered, build enough margins into your pricing so you can hire help or outsource tasks that you don't need to be doing.

2) Product Worship: Many budding entrepreneurs launch their business focused on the product or service they have created. Being product-focused is the fastlane to failure. Many businesses have introduced products and services that nobody wanted. To solve product worship, become customer-focused. Know what potential customers want or need and what it takes to solve their problem.

3) Thinking Small: Many new ventures focus on a marketplace that is ultimately too small. It may become hard to reach enough potential customers. Competitors may have already dominated the market. As a result, growth quickly grinds to a snail's pace and the business cannot expand. Often they subsequently discover that there is nowhere else to go. To solve thinking small, you should look before you leap or quickly move to a different pond. Some people are happy being the big fish in a very small puddle, but it's wiser to think that through before you jump in and muddy the water.

Why Startups Fail

4) 50-50 Partners: This is one of the biggest business killers I have ever seen. If you have business partners or investors, it is tempting (and often seems fair) to make each partner an equal owner with equal voting rights. Sometimes minor investors wield far too much influence. Eventually, this mindset almost always blows up into a disaster. It is unlikely that all partners will always agree on all aspects of the business or perform proportional shares of the work. To solve future partnership disagreements, decide early on who will have the final authority on tough matters. Ideally, give them the legal position to do so. Further, that partner will need to have sufficient engagement (golden handcuffs) to stay motivated.

5) Lack Of Faith: Many wannabe entrepreneurs never even get their business off the ground because they seek instant success. For true entrepreneurs who are properly prepared, the leap of faith is the launch pad. People who constantly wait for the right time never seem to find it. This also applies to people stuck on a growth ceiling. This is really just a marketplace indicator that some changes are needed before advancing. Anyone who gets complacent will generally fall from the cliff. To solve lack of faith, set a new target, do you homework (get wise counsel from a skilled outsider if necessary) and take action. Remember this quote: "When you get to the end of all the light you know and it's time to step into the darkness of then unknown, faith is knowing that one of two things will happen. Either you will be given something solid to stand on, or you will be taught how to fly."

6) Expensive Acquisition: Too many startups do not tie project performance to spending. They do not monitor, or even require, proper returns on investment (ROI). This is most common in the customer acquisition arena. Habitually spending too much on unfocused customer acquisition projects becomes a bottomless pit. Piñata Marketing is a term I coined many years ago to describe the approach used by disoriented entrepreneurs (and/or their sales managers) who blindly swat their marketing stick at a piñata bag of random tricks and tactics which they hope will spill abundant riches with just the right stroke. Sadly, they often completely miss the mark as they flail about. That wild and unfocused tendency means they often miss key opportunities and fall short of true potential, resulting in significant loss of wealth (and even failure). To solve poor amplification, make sure you don't spend more money acquiring customers than you earn from them. Require a profit on your efforts or don't do them. Make sure that anyone who spends money on customer acquisition knows how to measure the returns against the cost.

7) Pinching Pennies: This may sound like the opposite of #6, but too many startups do not do proper homework in advance. You must legally protect your patent and brand before you go too far and suddenly find out that you have to redo everything or cease operations. This extends into basic business planning as well. Most entrepreneurs do not write business plans (I'm okay with that) but every business should have a strategic and tactical blueprint to ensure that everyone is focused on the right things. If your planning processes don't light the way for the next 30 days, then the risk is high that major matters will be overlooked. To solve pinching pennies, make sure you check with skilled legal, financial, and marketing counsel before you go too far.