5 Common Failures For New Entrepreneurs (And How To Cope)

Getting into the startup world isn’t for the faint of heart. If you want to be successful, you need perseverance, determination, a great idea, and thick skin (not to mention a nice chunk of capital).

Something else you need? The ability to learn from other people’s mistakes. There are plenty of pitfalls and detours on the road to startup success, and if you can learn from the people who navigated the road before you, you can do your best to avoid those costly detours and hop on the fast track to success..

Luckily, startup founders and entrepreneurs are pretty generous about sharing their experience – including their mistakes. Understanding those mistakes – and learning from them – is the key to coping with them when faced with them in your own business (or, better yet, avoiding them altogether).

Let’s look at the five most common mistakes faced by startup leaders and how you can cope with them in your business.


1. Failing to protect your (cyber)space

No matter what kind of startup you’re building, you’re going to need customers. And that means you’re going to need to store sensitive customer data.

As a startup, there’s nothing more important than protecting your customers. You’re still new to them and you’re still building their trust; a breach of that trust (like losing their information to hackers) can be enough to sink your company.

Unfortunately, when a company is just getting started, they might not know all the measures they need to take to protect their – and their customers’ – data, making them a prime target for hackers.

Just ask John Rampton. John is an investor, an entrepreneur, an expert in all things digital, and a contributor to some of the top publications in the world, including Fortune, Forbes, Mashable, Time, TechCrunch, and Entrepreneur. Chances are, if you’ve done any reading on the startup world, you’ve come across something written by Rampton.

Rampton is an expert in the startup world, but that doesn’t mean he’s always been immune to startup mistakes – including not properly protecting his information. One of the biggest mistakes he made was just after launching the business. The company got hacked. There were 15,000 email addresses of customers that were stolen. And the hacker made Rampton well aware of this and it nearly destroyed his entire business.



How to cope

If you find yourself facing a data breach, don’t panic. Hackers today are sophisticated and can crack through some of the most secure systems, so if it happens to you, it’s better to look at it as an opportunity than as a failure. In fact, a hack can actually help you in the long run by exposing vulnerabilities in your system – and, if you play your cards right, you might even be able to transform your hacker into an ally.

That’s what John Rampton did. “I discovered this same guy had hacked PayPal three times in the past—he’s good.”

Rather than go after him or threaten him with legal action, Rampton tried a different approach. “I decided to tell him, ‘nice work,’ and that he had extensive skills,” says Rampton. “He asked for a bounty. I said we didn’t have one, but offered him $1,000 reward for finding a bug in our system. He kindly accepted, deleted all the records, and helped us fix a gaping hole in our system. Since then he’s been patching any holes in our system and triple checking everything… Had I approached him in a different way, things could have been very different.”

Now, not every hacker will jump on board and be willing to help you tackle your security issues. But if you’re hacked, it presents an opportunity to reexamine how you’re storing and protecting sensitive data and put more stringent systems into place. The more you can do to protect your customer’s data, the more likely they’ll be to trust you – and the more successful your startup will be.


2. Doing business with the wrong people

Have you ever heard the old saying “You’re only as good as the company you keep?” Well, that saying has never been truer than it is in the startup world.

So much of finding success with your startup is who you do business with. And doing business with the wrong people is one of the quickest paths to startup disaster.

Just ask James Altucher. Altucher is a well-known and well-respected entrepreneur, venture capitalist, best-selling author, and host of the popular podcast “The James Altucher Show.” He also has founded or co-founded more than 20 companies – 17 of which were epic failures. This has made Altucher the unofficial expert on how to pick yourself up after a startup failure.

And one of the things Altucher credits as one of the biggest mistakes he’s made in business? Trusting the wrong people. And not only was it one of his biggest mistakes – it was also one of his costliest. In a single day, Altucher lost $9 million. It turned out that the largest shareholder in his company owed $90 million in back taxes. The problem? He didn’t disclose this information. So the bank turned around and immediately wanted their money back.

Within the span of a single day, the bank seized every single division of the company and simply handed it out like candy to other clients of the bank that were in the same industry. Altucher was sick to his stomach because he had lost it all and there was nothing he could do about it.

And the reason for that major loss? Not fully vetting the team he was working with. “I didn’t even really know the other board members. Everything I had done with this company had been motivated by greed. I didn’t like any of them.”

Kathryn Minshew, Founder and CEO of The Muse, had a similar experience, only for her, she was betrayed by people close to her – her cofounders. In 2011, Minshew woke up one day and realized she was completely locked out from PYP Media, the company she had dedicated her life savings to building. She described the experience to Fast Company:

“A disagreement between the four [cofounders] turned into a nasty power struggle that put me and Alex [Cavoulacos], my current Muse cofounder, at the receiving end of screaming threats, and I woke up one morning to find my website access, as well as that of Alex and our entire team, shut off. I felt completely humiliated, like I had failed them and myself. I also ended up losing the entire life savings I’d put in the company–about $20,000.”


How to cope

Doing business with the wrong people is, unfortunately, a lesson that a lot of startup founders have to learn the hard way. But there is a solution! And, according to Altucher, it’s a simple one.

“Now I know: only do business with people you respect and like,” says Altucher. “A lot.”

Choosing to do business with people you know, trust, like, and respect can help you avoid startup betrayal. But even the best judge of character is likely to do business with someone untrustworthy along the way, so if you find yourself in that position, don’t let it get you down. Instead, look at it as an opportunity to rebuild better than before.

That’s what Minshew did. “We could have sued, or we could have started over,” says Minshew. “We chose the latter.”



3. Trying to be a Jack-of-all-trades instead of being a master of one

Another major mistake that leads to startup failure? Trying to be a jack-of-all-trades – and, in the process, being a master of none.

Just ask Rand Fishkin. Fishkin is the most recognizable name in the SEO industry. As founder and former CEO of Moz, Fishkin (affectionately known as “The Wizard of Moz”), has a huge online following and is widely regarded as the go-to authority on all things SEO. Fishkin built Moz into a digital marketing powerhouse, but it wasn’t without some missteps along the way – particularly when it came to figuring out the company’s focus.

Fishkin describes one of his biggest failures to lead Moz as his desire to always do something new. Instead of trying to improve upon past iterations, he was obsessing over adding new tools or features. Rather than upgrading existing features, the company continuously launched new features and forgot about them shortly thereafter. This spread into the company culture when no one could support the new features that were launched. This “do all the things” mentality ended up putting a serious damper on Moz’s success – something Fishkin didn’t realize until too late.

In 2013 and 2014, it was too late. He realized, after growth rates plummeted from 100% year-over-year to 20% that it was the end of the road. It was too late to do anything else to recover and he was out as CEO. The point? If you’re getting pulled in 10,000 different directions and trying to do everything for everyone, eventually, it’s going to sink your startup.


How to cope

If you want your startup to be successful, it’s better to do be the best at one thing than to be mediocre (or worse) at ten things.

Fishkin is working on building that message into the cultural DNA at Moz. “Even today, the hard-won lessons of focus, discipline, and building the *best* thing rather than the *new* thing have yet to fully permeate Moz’s organizational and strategic thinking,” says Fishkin. “My hope is that with more time, they will. And certainly, I plan to take that learning with me for the rest of my career.”

Another added bonus for streamlining your business and focusing on doing one thing exceptionally well? It allows you to focus your time, energy, and resources into that one thing – which will help your business grow. Just ask Neil Patel, uber-successful growth hacker, marketer, and entrepreneur and co-founder of Hello Bar, KISSmetrics and Crazy Egg. Patel used to be the poster child for trying to do all the things all at once, but it was only when he focused his energy that he was able to skyrocket his success.

Patel learned a big lesson. He was trying to do too many things at one time. Very much like other entreprneurs, he wanted to do it all himself. As a result, he spread himself too thin. What he learned, however, helped him enormously. It was the ability to focus all of his mental and emotional energy and time into one business, making it grow faster than any of his prior companies.


4. Spending more than you have

Running a business takes money. And one of the biggest culprits in crashing and burning startups? Running out of money.
Running out of cash is so common in the startup world, it kills at least a quarter of small businesses. And one of those businesses belong to best-selling author, speaker, blogger, and former publisher Michael Hyatt.

“In 1991, I—along with my business partner—suffered a financial meltdown,” says Hyatt. “We had built a successful publishing company, but our growth outstripped our working capital. We simply ran out of cash. Although we didn’t officially go bankrupt, the distributor essentially foreclosed on us and took over all our assets.”


How to Cope

Running out of cash is one of the hardest business lessons to learn. But if you actually learn from it, it can help you in the long run.

First of all, the reason most companies run out of cash is that they try to grow too fast. Even if you’re products or services are selling well, if you don’t have enough cash on hand to support your operations, it’s only a matter of time before you crash and burn.

When it comes to startups, take the approach of the tortoise and remember “slow and steady wins the race.” Don’t run your business into the ground by trying to grow too fast. Always maintain a positive cash flow and have a “rainy day fund” to hold you over if things start to go south.

And if you do run out of cash? Chalk it up as a learning experience and an opportunity to do things differently moving forward – which is what Hyatt did. At the outset, Hyatt was blaming his distributor for not selling more. But what he realized was that wasn’t the root of the problem. And if he didn’t accept the mistake for what it was, he couldn’t learn from it. The best part is that Hyatt attributes a large part of his success to this failure.

Through it, he learned that it was okay to fail. As long as you learned from those failures and made the proper changes, you could start the next venture more intelligibly.


5. Not knowing when to throw in the towel

Sometimes, a startup isn’t going to be successful no matter how hard you try. And not knowing when to throw in the towel only prolongs the inevitable failure, costing you a ton of time, money, and resources in the process.

It happens to even the best entrepreneurs – including the mega successful Jerry Hum. Hum is the cofounder of Touch of Modern, an e-commerce site with more than 12 million users that did over $100 million in sales in 2016 alone. But even though Hum hit the jackpot with Touch of Modern (and in his 20’s to boot), in the past, he’s struggled with knowing when to throw in the towel on unsuccessful projects.

Hum says that he regrets only that he didn’t fail quickly enough. Not that he failed in the first place. He should have let go rather than holding on for as long as he did. He beat his head against the wall trying to get the project to take off, but in the end, it didn’t work – and in retrospect, it would’ve been better to throw in the towel sooner.


How to Cope

Admitting defeat is never easy. But the faster you realized something isn’t working, the faster you can move on to something that will. Throwing in the towel on a project that’s not going anywhere isn’t a failure; it’s more of a fail to waste your time on a project after you’ve realized it’s never going to work.

After his experience with his failed project, Hum starting taking a different stance towards projects, which has saved him from investing too much time in resources into projects that aren’t going anywhere.

If you find yourself running around in circles and trying to force a square peg into a round hole with a company, project, or venture, it’s ok to throw in the towel. In fact, it’s a good thing; it opens up the time and space to devote to something else – something that’s going to bring you success.


Time to Get There

In the startup life, there will always be opportunities to fail. But now that you know the most common cases of startup failure, you know the biggest mistakes to avoid – and how to cope with them if they happen. So don’t let these failures hold you back – get out there and write your startup success story.


About the Author

Lindsey Vontz

Lindsey works on Organic Marketing and PR at 99designs. Before joining 99designs, Lindsey spent 10 years managing brands big and small, and helped launch an outdoor apparel brand called with her husband in 2013. Lindsey loves helping entrepreneurs find success through affordable branding and useful marketing content.