Tech startups are like the lottery – you see the big winners in the news, but nothing about the millions of the not so lucky. Well, actually you might read about the biggest tech startup failures and this article intends to prevent you from this fate.
In this article, we’re going to highlight some common tech startup mistakes and how to avoid them.
How many startups really fail, and why?
You may have read that most startups fail within the first year, but this is actually untrue. Research shows that most startups actually make it into their fourth year, where around 44% fail after that.
The most common causes of small business failure around the four year mark are:
- No useful market contribution (42%)
- Running out of money (29%)
- Having the wrong team (23%)
- Beaten by competition (19%)
- Pricing and cost issues (18%)
- Poor marketing (14%)
Another interesting statistic is the fact that software publishers, which belong to the tech industry, are the second worst type of startup, based on net profit margin. The worst 5 startup industry statistics are as follows (we’ve bolded those that belong to the tech industry):
- Oil and Gas Extraction: -6.9 percent NPM
- Software Publishers: -5.1 percent NPM
- Beverage Manufacturing: -3.7 percent NPM
- Semiconductor and Other Electronic Component Manufacturing: -0.3 percent NPM
- Forging and Stamping: 0.4 percent NPM
Securing investors that don’t care about your vision
Meeting with venture capitalist firms and securing capital for a tech startup is a crucial early stage. But too many tech startups rush into this – true, there are VCs who may throw bricks of cash at the latest buzzwords, but do they really care about the product?
Imagine this worst-case scenario: as part of the agreement, a venture capitalist receives a certain amount of company shares in exchange for their funding. To secure additional funding, you then sell them additional shares, giving the VC a hefty chunk of ownership in your tech startup.
Someone comes along and offers a buyout of your startup company. The VC, who happens to now be your majority shareholder, sells the company out from under you, because hey, they got their investment back and then some. It happens all the time.
So when you’re courting investors, try to make sure they’re actually enthusiastic about your product vision.
A myriad of NDA issues
The non-disclosure agreement is one of the most important contracts a tech startup can have at its disposal. It prevents employees from leaking sensitive project information, giving secrets to rival companies, or running off with company tech. If your tech startup is creating an app, for example, an employee who hasn’t signed an NDA could easily create their own version of your app.
NDAs aren’t terribly difficult to understand, though you should consult with a lawyer to make sure 1) an NDA is actually necessary for your company, and 2) it’s binding, with no loopholes. Aside from that, it’s pretty easy to create an NDA, and even have remote workers sign them online – you can use a template NDA form from Legalzoom, for example.
Having said all that, there are some common mistakes tech startups make in regards to non-disclosure agreements. The most common are:
- Not following through on NDA signatures: Smaller tech startups can be incredibly busy with projects, and things may slip through the cracks. An NDA gets emailed to an employee, the employee doesn’t sign it and send it back, but nobody notices.
- Believing friends don’t require NDAs: Some of the worlds biggest tech companies were started in garages, basements, and college dorms by friends with a common interest. Don’t make the mistake of believing that friends don’t ask friends to sign NDAs. Money changes people in a heartbeat.
- Not understanding the law of jurisdictions: There is no such thing as an “international NDA”. An NDA that is enforceable in one country, may not be in another. Take this into consideration when it comes to remote overseas employees.
There are many other tiny little mistakes that can render NDAs invalid; as we said before, make sure you consult with a lawyer who can give you the best advice on creating an ironclad NDA.
For remote teams, there are a ton of SaaS platforms and project management tools to streamline projects, keep everyone on task, and get a better overview of the teams’ strengths and weaknesses. Platforms like Wrike, Asana, Trello, Basecamp, Kanban, Google Sheets, Smartsheet, the list goes on forever. They’re all essentially the same, yet different in ways you may be tempted to try them all.
Believe us when we say, this can quickly lead to general mayhem. Your tech startup quickly spirals into SaaS overload. Tasks start slipping between the cracks, projects aren’t correctly ported over to new software, etc. Don’t fall into this mess. Find the project management software that does what you need, and stick with it. If you absolutely must try something new, do it on a trial basis with a small, non-consequential project, before you move your entire workforce over to it.
Additional Tech Startup Mistakes
There are a lot more common mistakes out there, which we’ll briefly list below.
- Hiring the wrong personalities into your company culture.
- Not auditing employee skill sets.
- Building a website for the simple sake of having one.
- Being too frugal on the marketing budget.
- Too much tech jargon in marketing material.
- Letting your coders write marketing material.
- Letting your coders write anything except code.
- Steve Jobs Syndrome.