4 UK Tech Startup Pitfalls

Depending on which articles you read, now is either the best or worst time to work in the UK startup scene. One thing is for sure – founding a startup is hard and the streets are not paved with gold (straight away). Here are a few words of advice, but we also want to know yours.

The UK sees 270,000 businesses starting up every year with 80% of start-ups failing in the first 5 years. Whilst this sounds scary, there’s a lot of help out there for UK startups, which we recently discussed in Oct/Nov 2012 – Massive Months for the UK Startup Scene. Starting a business is more than tough, as Walt Disney said “All the adversity I’ve had in my life, all my troubles and obstacles, have strengthened me. You may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you.” (Forbes).

It would be great to get advice before you start, right? Here are a few of the common pitfalls facing UK tech startups (and startups in general):

1) Business Plan

“Truth be told, most business plans fail to make much impression on potential investors. Most aren’t even read in full. Their shortcomings tend to be obvious even in a two-page executive summary, largely because they are written before enough real work has been done to create a solid foundation.” (WSJ)

A great idea needs planning to execute, you know the product inside out, but do people know it? The business plan you create should inform both your sales approach as well as marketing.

Do you have unrealistic projections? A key failure is either over-boasting and getting a poor funding deal, or betting the house on your projections, which in turn will lead to cashflow problems or conversely not taking in to account the opportunity to expand and be competitive.

Do you know it so well you’re missing something obvious? This is a key downfall for UK tech startups because even if your idea is a ‘no-brainer’, it’s the solution it creates that is important to the consumer, not why or how you created it. This will also allow you to mitigate against the next 4 pitfalls.

The best way to avoid this is to get the advice of anyone you can from the ultra tech-savvy to friends and family that might use the product. User testing on any level will quickly inform you if your plan is a no-go or just tough to pull off. This process will reduce the risk of both.

UK.Gov On Writing A Business Plan

2) Location and Market

“The relative inaccessibility of our location meant we would usually have to visit our business partners’ offices rather than have them visit us, skewing the working relationship unfavourably.” (Growing Business)

The startup world in the tech industry offers huge opportunity, it’s not a given that you need to start in the UK and build out. This said, will people understand or want your service on an international platform? Can you reach that far and maintain a good service? Finding the balance between opportunity and expansion of product reach is a balance between cornering the market and breaking your business.

A key pitfall is entering in to a market because you like it or think your idea is unique without researching. Know your market – what makes you stand out from others in the space and think – how long will this be sustained? Like territorial considerations, getting it wrong is the difference between being outcompeted or out-innovated, vs not spending too much on innovation before you can afford it.

3) Staffing and (Over) Expansion

“Hire people who are better than you are, then leave them to get on with it. Look for people who will aim for the remarkable, who will not settle for the routine.” (David Oglivy)

UK tech startups face a key challenge, ensuring that staff are committed to the mission, that they don’t overspend on them initially and at a basic level, they can get the right people for the right job.

The key problem is (and this should be built in to your business plan), hiring the wrong staff for the stage in your development (and the cost of it at that stage). Conversely, not having the right staff to pivot your business or keep work in-house can lead to being a non-agile or huge overheads.

A major pitfall is hiring people who don’t invest themselves in the core mission or not allowing them to be part of it. Early startup staff need be able to innovate past your idea, but also be good at what they were hired for.

4) Sales/Marketing Mix

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” John Wanamaker

A good mantra is – try anything and go to what works, but be careful not to spend your time on a loss-leader. It will become clear very quickly which marketing channels work, but it will also become clear which ones you thought would not work, do. Don’t miss an opportunity.

Getting the Sales/Marketing mix right is hard but essential, some people feel sales are a priority, but what drives them? Some feel marketing is essential, but what pays for it? Do it wrong and you will either cripple your business development pipeline through no awareness in your product; or spend your warchest on PR, advertising or social that could potentially have no effect.

An incremental approach is best and there are varying % revenue to spend ‘rules of thumb’ that are different depending on whether your startup is B2C or B2B. The most important rule with marketing and sales spend is measure everything. Within the digital world of advertising, the pressure is on for offline marketeers and those methods that rely on non-automatic empirical reporting. The digital age means that if you cannot find out which half is wasted, you’re doing something wrong.

Do you have a rule of thumb or lessons for people starting out? We’d love to know – let us know in the comments below.