Michael Angelo Costa

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The 2 Biggest Reasons Startups Fail

I am always amazed by the creative visions of start-ups, as they look at things from a different perspective.

They challenge the status quo and don’t adhere to the theory a lot of dinosaur corporations operate from – that old processes and old models should remain because, “that’s the way it’s always been done.”

Startups Uber, Lyft, and AirBnB are great examples of this point.

Transportation and vacation lodging are necessary, but their industries had been largely unchanged for decades. 

Uber, Lyft and AirBnB are no longer small start-ups. They are successful giants. So how did they get there? They  made it possible for people who own cars or and homes to turn them into income producing assets.

But what about the countless other start-ups that fail? The ones we never hear about.

Most don’t fail because their app didn’t work or their idea was bad. They fail because of “old school” reasons. 

Here are the top 2 pitfalls why good startups go bad:

  1. They hire the wrong people

  2. They don’t know how to effectively deal with the people they hire.

Your app or your idea may be great, but you can’t build a business and keep it going without a great team of people!

MISTAKE #1: HIRING THE WRONG PEOPLE

It’s long been proven that people hire people  like “themselves.” Meaning, it is our nature to hire people who we relate to – people who look like us, think like us, have similar backgrounds, etc. It’s an unconscious bias. 

While it’s natural, it’s the wrong approach. 

Why? 

When you limit input to people who mostly think or act like yourself, you end up with tunnel vision. You end up leaving out people with different points of view, which may eliminate opportunities—some of which could make you lots of money.

The co-founders are usually the visionaries. A company only needs a couple of visionaries, but it needs many talented people to execute on the vision. 

The startup doesn’t have much room to make mistakes. A bad hire in a key position can bring the whole thing crashing down.

The solve: Think about what type of skills and what type of personalities will be the best fit for the roles you need to fill. Who can bring skills you don’t have or points of views that would eliminate your blind spots? 

These are the people to add to your team. 

If possible, don’t hire people. Instead, start them out as independent contractors for 3-6 months to see how they actually perform on the job, not just how you assume they will perform. If they’re great, hire them as an employee. If not, let them go continue their search  for the right opportunity, while you look for a better fit.

MISTAKE #2: DEALING WITH PEOPLE

The founders are usually the smartest people in the room…and even if they aren’t, they usually think they are.

This is the “Dunning-Kruger effect” for smart people–the tendency to overestimate our skills or expertise. This happens when we lack enough knowledge about something to be able to fairly assess our comprehension of it. 

In other words, we don’t know what we don’t know, which makes us think we know more than we do. 
We humans think we’re logical, but all of the data, including observations and studies by Nobel prize winners, clearly indicates that we make decisions that are emotionally driven. 

Startup founders often don’t understand what it takes to be successful at another role and fail to understand that it is not as easy as they think. This can create resentment and turnover, erode confidence, and frankly, implode the entire operation.

I can’t say it often enough. Without an excellent team (i.e., people), your chances of success are slim.

All business people, including start-ups, rely more heavily on their gut reaction than they realize. But if you only go with your gut, eventually your gut will be wrong and you will make a mistake, maybe a big one.

Avoid these costly mistakes by not overestimating your expertise, looking for people who bring skills or expertise you don’t have, and thinking through your decision-not just going on gut. 

Don’t risk making costly mistakes. Working through the four main components of any big decision will keep you in control of your results and keep you on the path to greatness.

To your success!

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