At a time when starting a business can be easier than deciding what you want for breakfast, it’s easy to get caught up in the idea of launching your own startup. The result? Approximately 543,000 new businesses are started each month, which is more than 6.5 million new businesses per year. And 70% of upstart tech companies fail within their first years of existence.
Some, however, are rather lucky. I launched my first startup — Inbox.lv — in my home country of Latvia back in 1999. Three years later, this Latvian equivalent to Hotmail became the country’s first-ever tech exit.
This was followed by the launch of Roamer, an app that quickly gathered over 1 million users and eventually led to an exit. And now Lokalise — a translation management system that is in its fourth year — has reached $3 million annual recurring revenue.
None of these successes have come without mistakes that have taught me invaluable lessons. Here are six things new entrepreneurs get wrong when starting a business.
Having No Clear Idea How The Startup Will Make Money
Business refers to a person or organization that profits from providing goods or services in exchange for money. The core definition of business states that it has to make money.
However, many new entrepreneurs are so blinded by their idea and focused on bringing it to life that they lack a clear vision of how their product will make money once it’s built. As a result, way too many products are brought to life without a clear monetization strategy. These businesses either die when they run out of their existing investment or spend years depending on VC money.
Pursuing A Business Idea Without A Product-Market Fit
Product-market fit means that there are people who need what you’re making. And for the market to want your product, it has to solve a real problem — something important enough for people to be willing to open their wallets.
Most of the failed startups are victims of the lack of market fit. One of many examples is Swipes, a company that developed productivity tools, which managed to run for six years and even raise $1 million but never really found product-market fit and eventually ran out of money.
How do you verify product-market fit? Start with building a simple version of your future product and approaching your defined buyer with it. That’s what we did when starting Lokalise. Our team created a simple version of the software with just a few basic functionalities. We realized that there were people who would pay for that basic version, so we continued to develop it.
Putting Marketing Before The Product And Customers
My co-founder and I are firm believers that product and customer success must come before mass marketing efforts.
This lesson was learned while building the Roamer app, which reached over a million satisfied users in a few months. The more effort we put into customer service, the more positive our customers were toward our product. As a result, the app received high reviews on app stores, despite the mistakes and failures that are inevitable for every business.
When we started Lokalise, the product itself and customer success were our top priorities. Today, most of our new customers still come from word-of-mouth marketing, the most powerful marketing strategy.
Hiring Talent For Cheap And Not Taking Care Of The Team
Your startup will only be as good as the people building it. Therefore, trying to save on talent is ineffective and just foolish.
Once you’ve found the right people, invest in them and their work satisfaction. That was a mistake I made when building Inbox.lv. Not taking care of my employees and their well-being resulted in people leaving the company after a few months.
Now at Lokalise, we pay great attention to things like employee onboarding, motivation systems, professional growth opportunities and more. When hiring, we look for people who are smarter than us so that we can learn from them. That gives us confidence that our company is in good and professional hands.
Creating A Process Debt From The Early Days
Process debt refers to the amount of money needed to fix problems caused by earlier suboptimized processes or a lack of processes.
For example, if you don’t have standardized employee onboarding procedures from day one, that might be a complex problem to fix when you realize that people you hired a year ago still don’t understand the company’s mission.
When you start a new business, you have to wear all possible hats, and process management, understandably, is not your top priority. However, even a little thinking ahead can save you big headaches in the future.
Despite my previous experiences, we still have some process debts in Lokalise, which is one of the biggest challenges to solve. Just recently, we finished working on systemized employee onboarding, sales and client support processes that, ideally, should have been in place from day one.
Forgetting The Product Must Be Easy To Start Using And Difficult To Quit
As you create your product, your mind is probably bubbling with ideas — think of all the features and design elements you could add! However, instead of implementing all your ideas right from the start, keep your focus on the main customer problem and that feature or couple of features that solve it. That will help you keep your product simple and easy to start using, yet addictive enough that customers continue using it.
The first version of Lokalise had only three features: machine translation, webhooks, and API. These features allowed users to ensure faster and more consistent translations and organized translation process management. It solved the key challenges of content localization, which made our users stick.