Three main mistakes startups make

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Is it really a million you need?

One of the first things that comes to my mind when we talk about startups and investments is round sums which are usually declared for startup development and promotion. Sometimes, a sum in question equals as much as $1bln. When asked about how they've come up with such a sum, entrepreneurs usually mention some last steps in product development that need financing and such things. Some may tell you about marketing and sales expenses. But the thing is that 7-figure numbers may be a strong indication that the guys behind a startup just haven't bothered themselves with precise calculation.

More often we can see such numbers as $500k, $200k, etc. but again, everything revolves around round sums. For really well-planned financial models, 99% will not show you a round sum. So, from my point of view, a person who asks for $83,000 instead of $100,000 will have a better chance to get that money. It demonstrates your attitude to investor's money and the way you're going to spend it. So you need to be careful and prepared to be able to find proper investments for your startup.

One more thing to add here: before talking about investments into your startup, ask investors if they can render some non-financial assistance. Sometimes, their assistance may turn out to be much more valuable.

Know your business

Very often investors hear the phrases like "My startup is like a Twitter/Twitch/Uber for ... (insert business niche here)". The use of big names while describing the potential of your startup is aimed at showing that this very startup can be as big as a business mentioned above. The possible problem here is that very often the comparison is made between companies with absolutely different business models, but which may look a little bit similar to an inexperienced eye. If you have encountered an active investor who is into your niche, then chances are that you've just lost your opportunity. Comparing businesses with different business models will tell your investor that you don't understand how business processes are set up.

Another point to mention here is the name of your startup. Your ideal name should be one or two words long which ideally would give an idea of what the startup is about. No need to create a long name describing in detail the purpose of your startup.

The world is yours

The problem of assessing your potential market is a pretty hot issue in the startup world. There are two extremes here.

On the one hand, the market can boast of large numbers but the real profit is not so big. As a result, you get something closer to a small business, rather than a startup, without any possibilities to scale things up. On the other hand, calculations done in a wrong way can lead to such enormous figures like trillions of dollars. The problem here is that during the calculation process an entrepreneur hasn't segmented the market. What is more, it's impossible to conquer the whole market. All successful business models are niche-concentrated.

Another contributing factor to such figures can be the wrong formula used for calculations. Very often, entrepreneurs use the following pattern for calculation: they take the largest production volume possible (which is very often hard to reach, to be honest) and multiply it by the product's price. The problem here is that such calculation will show you your potential profit, not market. In order to get real numbers you need to get some statistical data from researches either done by you or (as the former variant is rather expensive) by some experts in your niche.

These are by no means the only problems entrepreneurs encounter, but surely one of the most common. If you know about them, it means that you can avoid them, thus increasing your chances for success. In the end, success is what any startup aims for.