November 23, 2014

4 Reasons Not to Launch a Startup

Startups are the new shiny toy these days. Groupon and Mint are among the constantly quoted examples of what can go right with a business startup, but what percentage of startups actually enjoy that kind of phenomenal success?

Before you jump right into a startup, consider these four reasons it might be worth thinking through.

4 Reasons You DO NOT Want to Have a Startup

1. Money Burns Like Kindling

Whether you’re bootstrapping your startup or actually get seed money or VC capital, I guarantee the money will disappear quicker than you planned. A VC in Silicon Valley wants you to meet in his office…tomorrow. Bam: $2,000 for travel expenses. Another mobile carrier said they’d consider hosting your app, if you make 20 hours’ worth of programming changes. Bam. Another $1,000 gone, with no guarantee of revenue as a result. Things break. Conferences come up. Money dwindles.

Even getting money can be problematic. VCs are the equivalent of journalists: they’re getting pitched from every angle, and being heard above the din isn’t always easy.

How to Circumvent the Money Drain: Having money, period, for your startup already puts you ahead of the crowd. Make a budget upfront and build in as many surprises as you can. Pad the budget for travel and discretionary funds, and make sure you always have enough to pay your staff.

2. The Learning Curve Is Tough

Unless you’ve done this before, I’m guessing you’re winging the whole startup thing as you go. Reading Hacker News and OnStartups; attending industry conferences; finding other startups in your area (or maybe you’re not doing these things?). There’s only so much you can glean about crafting a startup pitch to VCs from blog posts. You need inside advice, and what you lack may show when you’re pitching investors.

How to Get Your Startup Degree: Self-teaching and sticking with it is what helps the big startups get acquired or funded. Don’t give up. Find a local mentor or startup organization that will rally around you and give you inside tips on what investors (even specific firms) are looking for. Ask for advice in putting together your deck and business plan. You are not operating in a bubble; ask for help. Repay it on the other side.

3. You May Kill Your Co-Founder

You and your best bud came up with a fantastic idea for a startup…only now he’s dragging his feet at getting coding done, or disagrees with you on every point. How are you supposed to grow a business if you can’t even agree on a logo? Starting a business with a friend can be stressful and put a strain on a relationship. Do you have to choose between getting rich or having a friend?

How to Keep Your Friend and Make Money: At the outset of your startup, determine what each of you will do. What are each of your strengths? What will you each be responsible for? It’s a good idea if one of you takes the CEO role and can make executive business decisions. Make it clear who has what authority. Stay in constant contact, and don’t let aggression build up. Go out for beers together every once in a while.

4. The Competition Beats You to It

After months of development, you’re ready to release your app or service. The day before launch, you find out a formidable competitor has just launched the exact same product. Do you throw all your work down the toilet?

How to Keep on Truckin': The thing about startups, especially tech ones, is that you can’t focus on a single product or solution. You have to be multifunctional and find different ways to reach your audience. If this was your only product, you must decide whether to go up against a competitor with deeper pockets. The smart thing to do is to start out working on multiple projects so you can shift your focus if need be.

If you’re still reading, congrats. If these reasons didn’t scare you away from creating a startup, I wish you the best. Ben Yoskovitz talks about why you should begin a startup. You’re passionate. You want to change the world.  You’re a control freak. But you don’t need me to tell you that.

Startups are like babies. They require a lot of care, and many people start them on a whim. But they need constant nurturing or they’ll die (taking your $100,000 second mortgage with them). Be fully prepared for the responsibility a startup entails, and you’ll be fine. You can thank me after you’ve sold to Google.

16 Comments ▼

Susan Payton - Awards Communication Mgr.


Susan Payton Susan Payton is the Communications Manager for the Small Business Trends Awards programs. She is the President of Egg Marketing & Communications, an Internet marketing firm specializing in content marketing, social media management and press releases. She is also the Founder of How to Create a Press Release, a free resource for business owners who want to generate their own PR.

16 Reactions

  1. Hi Susan,

    I completely agree that start ups are never easy and require a lot of hard work, dedication and most important; the basics of running a business. I really liked the way you’ve highlighted what’s vital to know before you jump into starting a business. You and your readership may find the following article an interesting read: ‘Becoming proficient in a set of fundamental business skills is a must for success’

    http://businessinsightsblog.trainingforentrepreneurs.com/2010/03/01/becoming-proficient-in-a-set-of-fundamental-business-skills-is-a-must-for-success/

    Thanks for sharing!

    Riya Sam

  2. Though it’s really over-dramatized, The Social Network shows just how straining a startup can be on friendships, especially when a lot of money starts being thrown around. You’ve gotta know who you are (and who you’re not) as well as who your friends are (and who they’re not). Hire for deficiencies.

  3. I agree with Robert — gotta know who you are. Plus, you really have to be comfortable, no – solidly planted, in your own skin. Hiring for deficiencies is dead-on, but it isn’t easy to do. Far from it. We all believe when we start something that we know what we’re doing, profess to have the details figured out, but we don’t. Being grounded helps you to manage that chaos.

  4. I see these points as 4 reason TO start a startup. The rewards are fantastic for those who learn how to play the game and win. Point is this – growing any business is never easy. A small percentage of people survive and end up thriving. A lot of people attempt to start businesses and come across a challenge or two and go back to their comfort zones and quit. Stay committed and expect there to be difficulties and challenges – there always will be. Create strategies for dealing with big challenges. Find a mastermind or intelligent support group that can provide feedback and support. Make it a priority to recruit and or found a business with the most talented, brightest, most confident people.

    -Ryan Mettee
    BizGrowthNation.com

  5. These points just excite really. Well, except 3. But I don’t have to worry about that. I think the rest just adds to the enjoyment.

  6. The reason people start their own companies is that they just plain want to do their own thing, and more power to them. It’s the dream that keeps them going, but sufficient funding does help as well.

  7. @Riya–glad you liked the post. I’ll check out the one you recommend.

    @Robert & TJ–I thought the Social Network was very real in how it showed the destruction of a relationship over a business. It’s simply not worth it. I’ve got a post scheduled elsewhere about choosing your cofounder carefully.

    @Ryan and Jonathan–If you’re an entrepreneur who’s up for the challenge, then yes, these 4 items excite you. But if you read them and run, it’s not for you!

    Thanks to all!

  8. Great article. Many people have a great idea, but no plan for implementation and ROI. The primary issue? They did not invest time with a business mentor to design the plan!

  9. Susan’s article is well-founded. We recommend partner compatibility tests (see http://www.kolbe.com) and alert people such problems in our course A12 on Implementing a New Business Venture, at American School of Entrepreneurship, http://www.theasoe.com. The item on competition is particularly good, because one has to assume the competition knows what you know. I might incorporate that into the course, because it might mean back to the drawing board to refine products or services to keep the differentiating factors.

  10. Reading this blog really pisses me off.

    All I read are excuses…things you should have known ahead of time.

    If you don’t have the “stones’ to role the dice, don’t make excuses when you role snake-eyes.

    Business is war – step-up to the plate

  11. @Jeannette-You’re totally right!

    @Neal–Sorry this pisses you off. But you have my point: read this first and if it makes you run away, then you shouldn’t be in a startup.

  12. Wow! What kind of VC is it who expects from you to burn $2000 of his money just to meet him TOMORROW. And what kind of entrepreneur are you when you follow such order? Hope you have better things to do.

  13. #4 is absolutely misguided.

    My advice:

    Do one thing and do it really well.

    Hold your team to high standards; don’t settle for products that don’t meet the vision; iterate, iterate, iterate.

    Be disciplined about which vision to pursue; choose products that have large markets.

    Discover what’s in customers’ heads, and tackle problems where design is a differentiator.

    Work on as few products as possible; keep resources in reserve for experimentation.

    Start over (change direction) if you find yourself with a product that’s not working.

    The most important: Be very careful on where you get your advice.

    [Edited by Small Business Trends editor]

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