According to the latest IVC Research Institute report, over the past five years, 3,307 Israeli start-ups have shut down. The report reveals that most of the companies closed down a short time after their initial round.
There are seven typical mistakes that recur in many start-ups which may lead to their closure:
- Who’s on top – entrepreneurs developing a project are often geniuses in their field, whose talents are expressed at the outset, in the initial stages of entrepreneurship. The work at the beginning of a project is characterized by a sense of urgency and a battle for survival for the fast development of the product while keeping investors satisfied. Then, in the growth phase, the accelerated battle atmosphere subsides and the professional skills required of the CEO and the owner/entrepreneur are replaced by the need for managerial skills, which they often lack.
The solution – becoming aware of these new lacks and needs and fulfilling them. One way to do this is to appoint an experienced manager to manage the company.
- Uncontrolled growth – once the number of employees increases significantly following a venture round, it is necessary to build an infrastructure of work processes and procedures that takes into account the organization’s new structure, during a period where the owner is most likely too busy to deal with such a task.
Turning your organization’s structure from flat to tiered enables relieving people from too many duties and delegating authorities from the CEO to VPs, assistant directors and employees. This way, your organization can adapt itself to its rapid growth and remain successful, fast, agile, with fewer bottlenecks and efficient despite the multitude of tasks.
- From task management to employee management – start-ups in their early stages are characterized by a sense of purpose and tremendous motivation to make a small project grow and achieve success. However, time and accelerated growth lead to burnout. When new employees are recruited, the organizational culture changes and a shift occurs in administrative balance which brings about the need to manage people. All these completely change the rules and require reorganization to be attentive to the employees’ wishes, career aspirations, their professional and personal satisfaction, and the sense of purpose they experience in the organization. The CEO’s acknowledgment that they now manage a wide range of needs is the first step towards a stable organization with a strong foundation.
- Lack of transparency among executives – communication between senior executives is often conducted non-transparently and through a third party – the CEO. For example, the VP of sales is dissatisfied with the leads they received from the marketing department and turns to the CEO to speak to the marketing department, instead of approaching the VP of marketing directly and openly. Such conduct leads to failures in the executives’ work. To resolve this, actions are required to restore trust among executives, to generate open work processes such as collaborative work forums, and to establish an attitude of open communication. It is the CEO’s responsibility to roll the problem back to the “field” and to allow executives to solve problems between themselves.
- Increased employee turnover – recent years have seen a ‘quitting economy’ formed mainly because employees take to their personal and professional development rather than their workplace. In such an employment atmosphere, in order to retain employees, organizations must take responsibility and tend to the professional development and ongoing interest of their employees.
Efforts should be concentrated on retaining talents and investing in them, periodic meetings with employees and understanding their needs talks about personal development goals, formulating career plans, and more.
- Recruitment that is destined for failure – onboarding of employees, training them, and especially having them leave after a few months, is a tremendous waste of your organization’s resources. For this reason, it is highly important that your recruitment process is done correctly, in a manner that suits the organization and that brings in candidates whose values are consistent with your organization’s culture and values, and who will most probably stay with you for the long haul. How do you do that? Since modern management is not based on objectives but on organizational values, it is important that your organization’s values are clearly defined. Recruiters must then identify, upon interviewing, the candidates’ motivations and basic values, and examine whether they are consistent with your organization’s values.
- Lacking employee engagement – in rapid growth processes the distance between the company’s entrepreneur/owner who serves as its leader and the employees often grows. This may result in problems with the flow of information and the employees’ engagement with the company and its goals. To solve this problem, companies must invest and generate employee engagement based on five principles: employee sense of purpose, engaged management, professional development and growth, professional work environment and trust in leadership. Implementing these will lead to employees being more loyal and committed, improving their performance, contributing and ultimately benefiting the organization.
It’s understandable that as entrepreneurs and start-ups you can’t be “on it” in all areas, and most of your efforts are invested in the company’s continued development, growth and survival. However, there’s still much you can do to make sure you don’t fall into the wrong statistics and are able to continue to focus on the most crucial matters.
It all starts with a good foundation and a stable framework that will sustain your company’s continued growth – that’s exactly what we’re here for.