The last few years have seen a surge in the number of startups and small businesses started by college graduates or college dropouts.
Suddenly the young are no more scared of taking risks. They are letting go of the fat paycheck from established companies to start their dreams.
However, all is not rosy in the world of startups.
Even from conservative numbers, I am looking at more than 80 million startups shutting shop in the next five years. The reasons vary from no market need to the inability to raise funds.
What is it that makes the startup world so alluring for the young entrepreneurs?
What has changed that has made “risk” with a high probability of “failure” so appealing to today’s generation.
As far as I understand, the number one reason for youngsters starting their venture is the news and hype around the growing unicorn startups across the world. Startups that comprise of self-made young billionaires and millionaires.
Undoubtedly, getting rich at such a young age is a temptation that is too difficult to resist.
However, the young entrepreneurs in pursuit to become the next millionaire make mistakes. Mistakes that at times prove costly and sink their entrepreneurial ship.
So, what is it that today’s entrepreneurs are doing wrong?
1. They Believe the Hype and Focus on End Destination, Not the Process:
Let’s start with the most common mistake done by today’s entrepreneurs. Their whole entrepreneurial dream is based on a pipe dream. A pipe dream that is driven by the “billion-dollar exit” obsessed media that scarcely focusses on failures and ground realities of running a venture.
We all know McDonald’s is a successful business with an evaluation of approx. 170 billion dollars but focusing on “170 billion dollars” was not what got McDonald’s to where it is today. Instead, the reason Ray Kroc starts McDonald’s because “Ray Kroc wanted to build a restaurant system that would be famous for providing food of consistently high quality and uniform methods of preparation. Ray Croc wanted to serve burgers, fries, and beverages that tasted just the same in Alaska as they did in Alabama.”
The problem with the Young Entrepreneur is that they have too focused on the end result and not the process or the vision which was never around building a billion-dollar enterprise.
2. Trying To Do Everything Alone
Most of the startup founders you meet today are hell-bent on doing things alone. They are obsessed with being a part of one boss company where they want to be known as the young entrepreneur whose idea changed the world.
Here is a bitter truth for them – you cannot do everything on your own. You need people who can complement your skillsets by brining skills that you lack as an entrepreneur.
Also, always remember – it’s a lonely world at the top.
Being along also means fighting all the entrepreneurial battles on your own which at times can lead to depression. This is why they need a fellow entrepreneur – a business partner to help them support during the thick and thin times.
Moreover, when you reach the stage of fundraising from Venture Capitalists or banks – you will realize that businesses with more than one founders always get preference over single owned entities. The reason for the preference is simple – The financial institutions like companies that are led by people with a variety of skill sets than companies that rely on a single founder which also increases their risk.
3. Not Learning – How to Multitask
I have forgotten the number of times I failed because of my inability to get out of my comfort zone. Our comfort zone (usually) revolves around our strengths. We as professionals have our strength. The strength could be marketing, sales, or love for technology.
Herein lies the problem, like employees we focus too much on our strengths and do not learn or ignore the other aspects of running a business.
Young entrepreneurs take time to realize that government paperwork, handling finance, running operations, or Human Resources too are a part of running a venture.
While being obsessed with their strength helps them push one division, their inability to quickly understand the dynamics of business where every division plays an important role – inadvertently slows down the business’s growth.
I would call it laziness on the part of entrepreneurs. Laziness which stops them from moving forward in growing their business. Besides, since young entrepreneurs do not spend enough time upgrading their skillsets – their overreliance on employees cripples the business’s growth.
4. Raising Too Much Capital
How can “money in excess” be a bad thing? That is the question young entrepreneurs fail to ask. Call it inexperience or foolishness because when it comes to finding “the more the merrier” does not hold true.
First of all, more funding does not mean more success. On the contrary, it means more pressure from Venture Capitalists to show fast growth in the minimum time frame possible. It also means more chances of failures because you will barely get breathing space to think about your actions which will be driven by money, not logic.
Also, you do crazy things with money to stay “in the news”.
The recent WeWork fiasco is a perfect example of a company that had an idiot young founder who instead of running a company focussed on splurging on things that were irrelevant to the growth of a company.
He is not alone in this stupid world of startups flushed with money.
- Pixelon’s 1999 launch party featured performances by Kiss and the Who. It went bankrupt in 2000
- Flooz.com paid $8 million for an ad campaign featuring Whoopi Goldberg.
Young Entrepreneurs love to be in limelight. I don’t blame them; I have had my share of “attention issues” during my young entrepreneurial days. But I never did anything stupid to stay in focus because we were never funded by any VC and knew that every penny earned came after a lot of hard work. So, there was no question of wasting money just to stay in the limelight.
5. Thinking Prototype Is Product
In a world obsessed with MVP, we forget what a real product looks like. I know Agile is cool and MVP is cooler but do not expect clients to pay you for MVPs because MVPs do not solve a problem.
They only solve a part of a problem and demonstrate how they can grow to solve the bigger problem.
Youngsters want to make money on MVPs by overselling their concept to clients who at times find the whole thought of spending on an immature product – ridiculous or laughable.
I don’t blame the youngsters for their mistake. They are just reading too much news filled with new jargon and trying to emulate the success of a very few companies that were either lucky or knew the right people at the right place or managed to perfectly sell their “MVP”.
The lesson for the young generation is – All of us are not cut out of the same cloth. Do not follow all the success stories you find on the internet. MVPs are cool and are a good demo vehicle. But they are no substitute for a proper product that any customer would be willing to spend on.
6. Obsession with Product
I have lost count of the number of entrepreneurs who work based on their “hunch”. They have a hunch that their idea is the best and then they get over obsessed with building a product based on their idea.
They keep building, keep pivoting, and keep draining their precious resources into building a product that is never market-ready.
I have in fact met young entrepreneurs who are just building products without a market validation or business plan. By the way, did you know what the topmost reason for the failure of startups is – Lack of market need (42%).
Yes – you read it right. The over obsessions with products with no actual market research to know the demand for a product is what leads to failure for the majority of startups.
7. They Do No Network Enough: Obsession With Product
A few years back, I met a young entrepreneur who was doing really well with his startup. His small startup was showing promising growth and was getting rave reviews about their product. However, he was struggling to raise funds.
I asked him how many events has he attended or how many VCs has he gotten in touch with? He mentioned that he had sent emails to around 50 VCs and have not heard back from anyone of them. Therein lies the problem, VCs hardly have time to respond to emails. The majority of emails sent to them go to trash as they receive thousands of them.
To get their attention — you need to network and connect with the right people. This is what gets your attention.
The majority of entrepreneurs want to raise funds but they want to raise funds without networking. They forget that no one would want to invest a million dollars in an unheard company.
Networking means a lot in today’s world and can lead to the right connections.
8. Poor Organization Skills
How do you manage an organization when you have never worked for a company? How do you handle employees or allocate the right resources to the right department when you have never heard of organization management.
How do you manage an organization without having managed one in the past?
That is the question that plagues most of the young entrepreneurs of today. Organization skills require planning, strategic thinking, resource allocation, budget allocation, and everything that you can think of when you plan to run a business.
However, when you are yourself learning on the job – you make mistakes like allocating too much budget to one division. Persisting with inefficient employees or worse – sacking efficient employees for small mistakes.
The inexperience of not having led an organization reflects in your decisions which in turn, leads to mistakes.
You as a young entrepreneur either turn indecisive or impulsive.
Running a business is an art. An art that requires you to be brave yet smart about knowing when to walk away from a situation.
I see entrepreneurs not developing their organizational skills as another mistake that leads to failure of startups.
9. Not Knowing When to Exit the Venture
A famous saying is “leave when the time is right!”. Unfortunately, the young entrepreneurs forget to exit at the right time and then struggle to get investors later.
They get too attached to their startups and start deciding based on their passion than logic.
They forget that startups are there to help investors and them make money and rather than exiting the company or raising funds through IPO, they decide to hold on to the company for a long time.
Unfortunately, market conditions are not always business favorable and there is a good possibility that a competitor might beat you in your game.
This is why you must know when to exit the company and make a profit for your investors.
At the end of the day, we all make mistakes. Although some of the mistakes are part of our entrepreneurial process – a process that transforms us into better entrepreneurs, we the young entrepreneurs can easily avoid the mistakes that are listed above.
Some of them are as easy as getting a check of ground reality by relying on client feedback, building a solid business plan, or not over obsessing with a product.
Entrepreneurship is a journey where every day comes with a new set of challenges. How we handle them shapes the destination we are going to reach.
As a young entrepreneur, What we lack in experience – we can make up for that by our energy and ability to think fast and work smarter.