6 top startup misconceptions that lead to failure and 3 helpful tips

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

The most dangerous delusion is after attracting investments to decide that now success is inevitable and you can relax.

It is believed that the main problem that hinders the development of startups is the lack of funding. The issue of finding investments is especially acute for social startups, which, in principle, do not have the same opportunities for generating capital and a clear strategy for entering the market, like other startups, but at the same time have lower margins and less potential for scaling.

To solve this problem and attract funding in our country, there are many grant programs and so-called incubators and accelerators, which are aimed precisely at helping a novice entrepreneur to present his project and, if lucky, break the long-awaited jackpot.

We figured out the main misconceptions and mistakes that startups make when looking for investors, and talked about how to avoid them.

Major startup misconceptions

1. It is necessary to do a startup in IT, as it is now in trend

Only if your technology is truly breakthrough and you have found applied applications for it. There is too much hype now around everything related to IT: artificial intelligence, virtual reality, robots, cryptocurrency. These industries are attracting a lot of attention and money because they promise a quick return on investment. Here companies are sold with a multiple of 10. And if they enter the American NASDAQ stock exchange, then already with an indicator of 20: they became public, grew to a certain level, did not die on the way.

In general, the area is really trending, but too many entrepreneurs want to develop in it. Your project runs the risk of getting lost among a dozen other similar products.

What to do to stand out? You can try to integrate new technologies into familiar services. For example, attach Big Data technologies to a hairdressing network and collect data about visitors: hair color, dandruff amount, and so on. This information can then be sold to large medical companies or cosmetics manufacturers. It turns out that you cut people and additionally collect the database at the same time.

The second option is to find out for what purposes local and foreign funds are now giving money, the government of your city, and to open a startup in this area.

The third vector is to look for what customers need or another business, if it is B2B. What are the unsolved problems? This approach is based on the study of customer experience.

New markets and opportunities appear all the time, then they disappear and are replaced by others. We must keep our finger on the pulse.

2. For a startup to work, a good idea is enough

Unfortunately, one idea is not enough: any business is a huge effort and investment. You must become an entrepreneur. This concept includes, among other things, a very careful attitude to finance.

Among startups and aspiring entrepreneurs, there are many people who are passionate about their idea. But this is often combined with an absolute illiteracy in business matters and a reluctance to deal with trivial things, such as accounting for finances, hiring employees, and compliance with labor laws. So, all this will have to be studied and loved, otherwise the collapse is inevitable.

3. Receiving a grant is enough to go international

Aspiring entrepreneurs always want to conquer the world, but very often they do not calculate their strength. It would be very simple if receiving a grant would automatically give access to international markets, but this is not at all necessary, especially when it comes to a local grant.

If you receive a grant from an international organization, it can help you go international, because you will communicate with people from abroad, they will write about you in foreign media. But in the end it all depends on your activity. Obviously, if you received a grant from a foreign company, you have established a communication channel with this partner. Your task is to expand and develop relationships with this channel.

Najla Al-Midfa CEO, Sheraa Entrepreneurship Center in the UAE

To become successful internationally, you must first of all conduct thorough market research and adapt your product for the countries in which you want to promote it. The development of an idea abroad without understanding its nature and place in the global market poses a threat to the startup itself.

4. It is not necessary to draw up a clear plan for the distribution of funds

When you apply for funding, you must have a clear plan for how you will spend your money. This idea may seem obvious, but there are times when young entrepreneurs at a meeting with an investor voice the amount of a million dollars. And when they are asked to specify what they will spend this money on, there is no answer.

To avoid such a situation, you must have specific goals for which you need investments. It is clear that some part of the money will be spent on operating expenses - salaries of employees and so on, but this must be somehow linked to the achievements of the team: for example, such functions need to be introduced into the product in six months.

Another "obvious" but important rule: the financial plan must be strictly followed. You must show that you spent your money exactly as you intended, and not to buy a luxury car for personal use. Otherwise, very serious claims against you may arise, up to lawsuits. More on this in the next paragraph.

5. Having received money, you can relax

There is a popular joke among startups: the first money is given by 3F - family, friends, fools (family, friends, fools). If these sources of funding were not enough (that is, almost always), entrepreneurs start looking for investors, business angels, donors, and go to crowdfunding platforms. However, getting a grant often becomes a fix idea, and this is also a danger.

Getting a grant is really very useful for a startup. And first of all, not because it is financial assistance, but because it is an excellent opportunity for PR, which also provides access to the client base. Through grants, the entrepreneur enters a new circle of acquaintances and makes useful business contacts. The startup actually gets free promotion, it has a chance to "come out of the shadows." The industry media is eager to cover the grant area and closely monitor the success of the companies.

But now you got the money, and what next? Many startups relax afterwards. But it is important to understand: incubators, accelerators, investors and funds allocate money only for specific purposes. You cannot get funds just like that and spend them at your own discretion. If a startup said that it needs money to purchase equipment, then it will have to purchase this inventory and then document its actions.

An entrepreneur must have a specific business plan, where he clearly prescribes how much money he needs and for what purposes. This must be taken seriously.

It is worth considering one more point: it often happens that the entrepreneur needs to pay a certain percentage of the amount received. As a rule, this is 10–20%, therefore it is necessary to carefully study the requirements of grants and incubators.

6. Promotion in the media after receiving a grant will last for a long time

Yes, the distribution of grants is widely reported in the media. But do not hope that now you can rest on your laurels. On the contrary, you need to do everything so that those who write about the grant fund tell about you. In addition, of course, you need to share the news yourself: on your website, in your blog, in social networks. It will be good if it is a well-thought-out PR campaign with specific steps: today we are talking about this, tomorrow about something else.

Please note that you need to tell not only about the fact that you received the grant, but also about how you are spending it.

For example, you received a grant from the city government to care for homeless animals. You can post photos on social networks for half a year (depending on how much the grant is calculated): “Look what cool cages for dogs we bought. And now a famous blogger has come to draw flowers on our booths. And we also have a competition: who will paint our fence more creatively”. At each stage, you can create a PR-reason.

If you have a limiter in the form of your own modesty, then let us quote the well-known phrase: "Modesty is the path to the unknown." You cannot grow your business if you have paved your way into the unknown. If serious people gave you money for a project, then, in their opinion, it is important and interesting, it is worth talking about it.

A few tips from an experienced startup

Andrey Grigoriev CEO and founder of GetShop. TV contextual advertising service. He has already won three grants and knows what to do to make it work for you.

1. Select an individual to handle grants

Submitting documents for a grant is not an easy task. We entrusted this task to a separate person who spent more than a month of painstaking work on applying for each grant. Based on this, calculate the deadlines so as not to postpone everything until the last day, when you will definitely not have time to make a high-quality presentation of the project.

2. Communicate your innovation in business language

Experienced people are usually present at the meetings of grant committees: investors, engineers, experts, top-managers of large corporations. However, despite the high level of knowledge, they may not be experts in your field. Therefore, your application and presentation should very clearly and clearly explain what problem you solve with your product, how you are going to monetize the technology, and give an understanding of the competitive field.

Your words should be understandable to a wide range of people, but at the same time not turn into a fictional composition. Here, another common mistake of startups manifests itself, according to the vice-president of the Expo Live grant program Yusuf Kayres, is to apply for a grant with raw, unfinished projects that do not solve any specific problem. First of all, you yourself must clearly understand what is the main value of your project. And be able to describe it clearly and in detail, without water.

3. Set clear KPIs

They will be your coordinates in the difficult navigation of the oceans of the market. And it is they who ultimately have to determine the success in the implementation of the project.