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The 18 Mistakes That Kill Startups

Paul Graham, co-founder of Y-Combinator, was once asked “what makes startups fail?” It’s a clever question because if a person avoids doing what’s on this list, then they should survive. 

Above all else, the one thing that kills your project is “not making something users want.” Everything else below can be disregarded if you aren’t making something people want.

1. Single Founder

There are very few examples of successful startups that are just one person. Even though most companies have one public-facing figurehead, there is usually a team around them. Having a team allows you to bounce ideas around and share the workload. Accountability is created when you don’t want to let your co-founders down, which can help get through the lowest of lows.

2. Bad location 

Be where the experts live. Graham wrote this post in 2006 and called out a handful of US cities where startups were viable. Physical location matters significantly less in 2022, but the message remains the same - be around the “right” people. I think this can be partially substituted through online communities, but in-person connections still matter.

3. Marginal Niche

People can pick obscure and trivial problems to solve for their startup. There is usually one reason for this: avoiding competition. Any good idea is going to have competition. “You can only avoid competition by avoiding good ideas.”

4. Derivative Idea

Creating an imitation of an existing company is common, but that isn’t usually a good starting place for a company. Most successful startups are created because the founder is solving a specific unsolved problem with first hand experience. Look for problems and imagine what it would take to solve them.

5. Obstinacy

It’s important to have a vision, but a startup must be flexible. You can’t be rigid, but you can’t also pivot every week. Graham offers this barometer on when you should pivot, “If you're thinking about turning in some new direction and your users seem excited about it, it's probably a good bet.”

6. Hiring Bad Programmers

Can’t add much more to this one. If you aren’t a programmer, then the best thing is to get a programmer that can hire good ones. The only problem is how do you end up with the first good programmer? Tough nut to crack that requires a little bit of luck for non-programmers.

7. Choosing the Wrong Platform

A platform is the foundation for your startup. Graham refers to platforms in terms of technology (e.g., operating system or programming language), but this good be broader. Whatever you are building on top of you’ll want to make sure it supports the structure above. 

8. Slowness in Launching

Launching quickly forces you to finish the work. “Nothing is truly finished till it’s released.” Releases allow you to get feedback from your users to begin the iteration process. Nothing will ever be perfect when it’s launched.

9. Launching Too Early

Launching too slowly has killed more startups rather than launching too fast, but it is possible to launch too quickly. What’s the minimum you need to launch? Graham writes, “identify a core that's both (a) useful on its own and (b) something that can be incrementally expanded into the whole project, and then get that done as soon as possible.” 

10. Having No Specific User in Mind

The problems we understand the most are the ones we encounter. Building something for yourself simplifies the issue of creating something users don’t want. You can always build for users other than yourself, but you’ll need to be consistently checking that you are staying the course.

11. Raising Too Little Money

Raising capital creates a runway. Once the runway is up, you are either airborne or dead. More money allows for a longer runway to get airborne. Being “airborne” has different meanings for different situations. 

12. Spending Too Much

The most common way of spending too much is hiring too many people. Graham has 3 suggestions about hiring: 

1. Don’t hire if you can avoid it 

2. Incentivize with equity rather than salary

3. Only hire people to write code or will aquire users as those are the only things you need at first

13. Raising Too Much Money

“When you raise a lot of money, your company moves to the suburbs and has kids” The culture changes from just founders to bringing in employees. Employees aren’t as dedicated. Having money creates inertia because more people are involved. That being said, capital is needed to scale, but adequate thought needs to be put in place before this decision is made.

14. Poor Investment Management

As founders, you want to spend as much of your time on product development rather than managing relationships with your investors. As long as things are going well, your investors should remain fairly quiet and allow for you to chart your own path. The problem is that things rarely go smoothly in startups. 

15. Sacrificing Users to (Supposed) Profit

Making something that people want is much harder than creating a business model. You need to put your product first, then you can think about profits. It’s irresponsible to not think about a business model, but if you can’t create something people want then your business model doesn’t matter.

16. Not Wanting to Get Your Hands Dirty

If you can be the one who attracts users, you’ll have a much greater chance of succeeding. Product development is most important, but business activities will need to happen if you want to translate your idea into a company.

17. Fights Between Founders

Most disputes aren’t about the situation, but rather the people involved. This is why the choice of co-founders is critical. “The people are the most important ingredient in a startup, so don't compromise there.” Disagreements are going to happen, but you want to have a team that won’t implode over them.

18. A Half-Hearted Effort

The most common failed startups are the ones we never hear about. Friends working on a side project but were never able to fully dedicate the energy required to it. Most successful founders quit their jobs and most failed ones don’t. That doesn’t mean that everyone should quit their jobs, but it’s very hard to give a startup the required time and attention if it isn’t top priority.

Link to the full article by Paul Graham.

End Note

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Have a great day,

Nick