9 Brutal Startup Mistakes That Can Kill Your Business (and How to Avoid Them)

Going from startup to business success is a rocky road filled with land mines. Here are 9 startup mistakes you should avoid if you want to survive past the initial stages.
September 02, 2014

Entrepreneurs are pretty optimistic people. After all, who else would put heart, soul, hard-earned cash and boundless energy into something that has a 50 percent chance of tanking within five years?

But the hearty ones who succeed know you need more then optimism and passion to make your business work: You need a road map that not only helps you identify the metrics for success but also warns you about the dangers that can surely derail you.

Granted, there are probably as many reasons for startup failure as there are startups, but here are nine common mistakes to avoid, along with some hard-earned wisdom from entrepreneurs who know from experience how debilitating those mistakes can be.

1. Allowing Love to Make You Stupid

In his early 20s, when Alfredo Atanacio was traveling frequently on business between his home in Miami and his native El Salvador, he found that a virtual assistant helped him stay organized. Surely, he reckoned, other professionals were in the same boat and would appreciate (and pay handsomely for) help from bilingual virtual assistants. So Atanacio and his business partner, Rodolfo Schildknecht, launched Miami-based Uassist.ME in 2009 as a virtual assistant services businesses for busy individuals.

But the partners were wrong about filling a market need. “No one wanted to try it, and we thought, ‘What’s wrong with these people?’” Atanacio recalls. At the time, Uassist.ME was charging $700 a month. Potential customers and advisors suggested offering a lower price point and targeting businesses rather than individuals, but the partners insisted on sticking to their original business plan.


After several months, with no visible bump in customers, they relented and changed their business model, targeting businesses and introducing tiered pricing that started at $200 a month. “Now 80 percent of our customers are businesses,” Atanacio says, “and most sign up for the $200 plan and then upgrade. Now we have around 300 clients who pay from $200 to $1,500 a month.”  

While UAssist.ME is now on the right track, Atanacio knows he lost time and traction. “I fell in love with the idea, and I resented it when people told me how I should be running the business,” he says. “You become blind, and that’s an expensive mistake.”

2. Lacking Focus

When you first launch a company, it’s very tempting to get distracted by shiny objects—those opportunities that beg for your attention even though they may not be part of your core business. Matt Wilson, who co-founded Under30CEO in 2008 as a social network for young entrepreneurs, says, “I pivoted way too many times in the early days.” At the time, Wilson and his co-founder, Jared O’Toole, were strapped for cash and, Wilson says, “because we had no money, we were always chasing the next thing that was going to make us rich or at least pay our bills.”

The partners tried selling personal development tools, like books and e-courses, and ventured into affiliate marketing, consulting and daily deals. When one revenue model wasn’t instantly successful, they’d try another. “If we had started with some money, it would have given us the leeway to be more patient,” Wilson says in retrospect.

Now, Under30CEO is a media company that’s monetized primarily through advertising. And the partners have started an adventure travel company for young adults called Under30Experiences, which will be expanding from one trip a month to five by the end of this year. A publishing division is also in the works.

“Now, when I start a revenue model, I look to start it for life,” Wilson says. The valuable lesson he learned: “Start with capital, pick a way to make money, and stick with it.”

3. Being Undercapitalized

See No. 2.

4. Planning Too Much 

You need a business plan, right? Maybe not. Spend too much time dithering about the details of your idea, and you just may plan yourself out of business before you even start.

“Planning is a static activity based on a perspective that will change or be proven inadequate as you begin to execute and learn,” says Morgen Newman, co-founder of IdeaPaint and of a new startup called MixedMade, which makes Bees Knees, a spicy honey hot sauce. Newman and his partner, Casey Elsass, launched MixedMade with a firm commitment to take their new product to market in 30 days.

“We were forced into action even when planning felt easier or safer,” Newman says. “Although our self-imposed time frame was challenging, I think it actually made our job easier.”


The partners' goal was to quickly prove that there was a market for Bees Knees before further investing in other areas of the business, and that forced them to have a laser-like focus. “With so few days to accomplish all the milestones to launch, we had to continually ask ourselves, ‘Is this thing I'm doing actually getting us closer to hitting our launch goal?’” Newman says.

Choosing a name for the product, sourcing the honey and bottles, experimenting with the recipe, designing a logo was all done without much deliberation and with the understanding that every decision would not be “right.” But their strategy worked, and now the company has piqued the interest of a major retailer.

5. Choosing the Wrong Investor

When your company gains some traction and you suddenly find yourself in growth mode, you may also discover that your cash reserves are dwindling.  But when it’s time to raise outside capital, remember this cardinal rule: All money is not equal. 

Freya Estreller, co-founder of gourmet frozen treat maker CoolHaus, and her partner, Natasha Case, decided to work with an angel investor they believed was a great fit for their growing company. “He'd invested in a cookie company that was a co-packer of ours, so we believed he'd be a good strategic investor,” Estreller recalls.

But the partners were mistaken. While the investor certainly had interests that were aligned with CoolHaus, he was concerned about the day-to-day operations and not willing to let the co-founders make mistakes, Estreller says. “We mistook common interests for common vision,” she notes.

Fortunately, the investor agreed to convert his equity to debt. Estreller's lesson: Be clear about the value, beyond money, that your investor adds to your business.

Estreller and Case recently landed $1 million in funding from former Cherokee Group CEO Bobby Margolis, who's credited with turning around and building that brand. “He thinks big,” Estreller says. He focuses much less on the day to day and more on helping the partners be the next Ben & Jerry’s. According to Estreller, CoolHaus is now on track to bring in almost $6 million in revenue this year.

6. Hiring Too Quickly

Almost every CEO complains about how difficult it is to hire and retain great employees. The problem is even more difficult for startup founders, who frequently can’t afford decent salaries but need boots on the ground quickly to help them manage all the moving parts at their nascent companies.

Such was the case for Deepti Sharma Kapur, who started FoodtoEat in 2012. The company is an online ordering service that gives consumers access not only to restaurants but also to food trucks and caterers. Restaurants pay the company just ten cents per order. “I was a sole founder, but I knew I needed a team,” Kapur says. 


To build her customer base, she quickly hired salespeople but made the mistake, Kapur says, "[of] hiring people who didn’t understand the company or the vision but were just looking for jobs.” The result: Kapur was faced with the painful task of letting people go—a distraction no startup founder wants.

“Now I’m mostly relying on references and talking to people in the industry,” she says about her hiring process. “And the first question I ask is, ‘What do you know about the industry and our company?’” FoodtoEat, which works with more than 900 food vendors and serves corporate customers such as Tumblr, posted $500,000 in revenue last year.

7. Not Listening to Customers

In 2009, Fan Bi and Danny Wong started Blank Label, an online custom shirt maker, with the assumption that their customer base was young, hipster guys who'd be interested in designing their own shirts. Eighteen months later, Blank Label had six-figure revenues and was close to being profitable. The founders figured it was time to look a little more closely at their customer data. They were shocked at what they found.

“When Blank Label first launched, we were presenting custom dress shirts as a great opportunity to design your own shirt,” Bi says. “We knew customers also cared about getting a custom fit, but we weren't focused on that.”


As it turned out, their customer base was far more conservative than the one they thought they were appealing to. “After a survey of all our customers, 82 percent of them came back and said they primarily cared about a custom fit," Bi says. "Only 6 percent primarily cared about designing their own shirt.”

The lesson they learned? “Talk constantly to customers to learn why they buy your product," Bi says. "Focus exclusively on that reason, and be the best at that.”

8. Trying to Be Perfect

Good may be the enemy of great, but trying to be great at everything from the get-go can be toxic for a startup. “It’s important to analyze the cost versus benefit of your activities and really prioritize,” says Kristaps Ronka, founder of BookMyCity, an online appointment-booking platform for service providers, such as health-care professionals, mechanics and personal trainers.  


“We often had to step back and prioritize, catching ourselves wasting valuable time on elements that are undoubtedly great but not necessarily essential to the core product,” Ronka says. For instance, the company’s fancy video tutorial for users was a nice feature for the website, but basic instructions would have sufficed while the founders focused on more pressing issues, Ronka notes. And time spent on a developing “package deal” pricing could easily have been delayed.

“It's very easy to fall into the 'features and design' loop, up to a point where you justify the work with the assumption that more clients will be interested in a 'prettier' product,” Ronka explains. Now, he tags every to-do item with labels such as "bug," "urgent," "usability," "design," "nice to have" and so on. It forces him and his team to focus on tasks that may not be quite as sexy—like billing functionality, for instance—but that are essential to the core of the business.

9. Blindly Following Advice 

When you're first starting out, you may not have many people to consult regarding your business issues, so you rely on the few people you think can help. For instance, you bring on investors not just because you need money but because you also need advice.

But investor advice, while frequently invaluable, is not 100 percent reliable. Zoe Barry, founder of ZappRX, learned the hard way that blindly following investor advice can get you into trouble. ZappRX is a platform that connects physicians, pharmacists and patients to help manage medications. Her investors recommended she add two executives to her team, whom Barry hired after doing what she thought was adequate due diligence—her investors had recommended these folks, after all.

But the new hires didn't work out—Barry even discovered that one candidate had misrepresented their qualifications. She was forced to fire both execs and, she says, “It was really painful.”

In the process, she made a key discovery: When it comes to building and refining her product, she’s her own best advisor.

“One of my investors felt strongly that there was a product feature we should bet the farm on,” Barry says. The problem: After checking with a key customer, she discovered that the feature isn't something they were willing to pay for. 

The lesson: Do your own research, regardless of what investors tell you is the right path for your company. “Once you have the data, you can turn around and have a productive conversation to talk them down,” Barry says. “Because I’ve done the research, I’m under no obligation to go down the path [they're] championing.”

What’s the biggest mistake you’ve made with your startup? Share with us in the comments below.

Read more articles on business startups.

Photos: Getty Images, Alexandra Basagoitia, Sulav Darnal, Michael Kinlin