What Small Businesses Can Learn From Failed Start-ups

We look at three different company stories and what their mistakes can teach you about business strategy

What Small Businesses Can Learn From Failed Start-ups

Business owners learn from their mistakes, right? But what if you could skip the painful part and get right to the enlightenment bit. Darren Fell looks at former businesses’ failures and identifies the key lessons in each.

Mistakes are important in business and it’s essential that entrepreneurs do not become afraid of making them as doing so will mean inhibiting innovation and growth. However some can be avoided by looking at other company’s experiences and learning from them.

From identifying future risks to conducting extensive market research, we look at three lessons to learn from other businesses’ failures…

Business lesson 1: Bullet-proof your idea

Secret does not represent the vision I had when starting the company’, founder David Byttow blogged after closing his anonymous social network.

Initially the start-up was commended for giving vulnerable people an incognito platform to seek advice on sensitive issues without fear of being identified. But soon, Secret devolved from a weapon of empowerment to an arena for trolls to victimise users without being caught; and was eventually referred to in tabloids worldwide as ‘the cyber-bullying app’.

Had Byttow assessed and considered the well-documented negative prospects of online anonymity and placed an anti-bullying stance at the core of his business, it could have avoided such a backlash and continued to grow on its 15 million users. Instead, after a whirlwind 18 months, the ‘Secret’ was out.

Business lesson 2: Fine-tune your market research

70% of 250 people surveyed said they would pay for a same-day recipe delivery service, but to Dinnr founder Michal Bohanes’ dismay, only 12 orders came in during the first week, and sadly never picked up to the level anticipated:

Dinnr was a classic case of a solution looking for a problem. I conducted market research superficially, let compliments go to my head, and assumed that the problems I was solving were big enough that people would pay money for the solution. Instead, I should have asked for commitment on the spot.

In his post-mortem business report, Bohanes stated that rather than asking leading questions to justify an investment, the collected data should instead have been focused on customers’ previous behaviour and experiences to determine whether there was a gap in people’s lives for it.

The company closed in August 2014, eighteen months after its launch, with its creator conceding “it simply didn’t have legs”.

Entrepreneurs should always identify the demand for their project based on more than lip-service. Not every good idea is a good business; be rational and do not let confirmation bias lead you miles in the wrong direction. For more on conducting market research, check out Startups.co.uk’s section here.

Business lesson 3: Build the right team

Imagine any great sports team in history, then imagine if all of the players were placed in positions they weren’t properly trained in. Or worse, if the manager decided to save some money on players’ wages by playing in all the positions at once.

That’s the trap Attila Szigeti fell into when he started Rate My Speech, an online peer review site for public speaking.

Instead of fully focusing on finding a CTO (chief technology officer), or looking for other ways to get somebody creating the product, I decided to learn how to code and do it myself,”said Szigeti.

Szigeti embarked on a two week crash course and then spent two more weeks building the initial version of the Rate My Speech app: “It was a painful month. On one hand I enjoyed learning how to code. On the other hand, I realised that I don’t want to do this. It’s just not for me.

Despite having the satisfaction of learning to code being ticked off his bucket list, Szigeti noted that the product only ended up with “about 70%” of the functionality he’d imagined.

He attributed “too much ego” as one of the main reasons the project failed, adding: “Note to myself: Next time, you just focus on customers and team building, and get people into your team to do everything else. Much better than you could do.

Learning new skills is an admirable and valuable ambition, but it’s crucial to remember that in most roles, there really is no substitute for experience. As writer Brandon Mull put it; “Smart people learn from their mistakes. The real sharp ones learn from the mistakes of others.”

Although accidents and mishaps are inevitable, with proper planning, research and implementation some can be avoided. For more help with developing business strategies for your firm, check out our planning section here.

Darren Fell is CEO of Crunch, a specialist online accountancy firm for freelancers, contractors and SMEs. Check out his profile here

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