Business

11 Most Common Reasons Why Startups Fail

Entrepreneurs are known to be tenacious, hard working, and resilient. Unfortunately, regardless of their great potential, big ideas, and passion, 90% of them still fail.

Of course, if you’re thinking of starting a business, it’s a good idea to understand why startups commonly fail. This can allow you to spot the red flags early and pivot as needed so you can avoid the same fate as 90% of your fellow entrepreneurs.

Here’s a list of the most common reasons why startups fail:

1. No Demand in the Market

Every new business owner thinks they have a killer new product or service that everyone is going to want. They’ll soon be rich, they think. The truth is many business owners tend to exaggerate the demand in the market for their offering. Most likely, they didn’t do any market research at all before launching the startup. This is ultimately their undoing.

A successful startup will ensure it is solving an existing problem in the market and that there’s enough demand for its products or solutions to justify starting the business in the first place.

2. Running out of Money

Another reason why startups fail is because it’s running out of money. Some new companies can be started with very little capital, especially when selling services. Others are only born after receiving a large influx of startup capital.

While there’s no fixed answer to how much money an entrepreneur needs to start a business, it’s important to properly estimate your expected revenue and expenses so you don’t run out of cash early on. Seek the best business investment opportunities, and raise additional funding as required, to avoid this fate.

3. No Business Plan

Starting a business is about more than just building and selling a solution. Business planning ensures you have analyzed your environment and created a roadmap to success.

Among other things, a business plan helps you determine who your audience is, how you’ll reach them, and how you’ll scale. It identifies your goals, objectives, and mission; your challenges and obstacles. Many startups fail because they simply start selling a product without a business plan. After all, how can you achieve success if you haven’t identified what success means?

4. Leadership Struggles

More often than not, founders cannot start or grow a successful company on their own. Many take on business partners or investors to boost their cash flow, diversify their skills, and increase their chance of success. Discord among these key leadership executives is often the start of the company’s downfall.

When internal struggles cannot be contained or resolved, founders often have no choice but to dismantle the company.

5. Lack of Skills Required

A founder is only one person – and one person alone typically does not have all the necessary skills to start and build a successful business from the ground up. From business and finance acuity to marketing, selling, and legal, startups need to invest in the right skills to help ensure their future success.

6. Failing to Pivot

Mistakes happen. Entrepreneurs create bad products. Founders make bad hires and bad decisions. The important thing here is to realize the mistake has been made and pivot in time to mitigate the problems it may cause to the business. Being married to a bad idea, in particular, has caused many startup failures.

7. Poor Pricing

Getting your pricing right is critical to not only the start of your business but its growth and scalability, too. If your solution is too expensive, you’ll end up pricing yourself right out of the market. No one will be willing to make the switch from a lower-cost competitive to your brand without seeing massive benefits.

On the other hand, if you price your solution too low in order to attract buyers, you’ll struggle to scale the business as your overhead costs inevitably rise.

8. Not Being Customer-Focused

A business is nothing without customers. Ignoring customers’ needs is an easy way to create a product or solution that no one wants. It’s a good idea to gather and implement feedback from users across the product development process and beyond.

9. No Marketing

“Build it, and they will come.” Not quite, actually. When you enter a market, you need a way to tell your audience that you’re there. Otherwise, how are they supposed to know who you are, what you sell, and why they should buy it? Effective marketing can help provide much-needed brand awareness and lead generation. Ultimately, this will help you get customers.

10. Lack of Passion

Building a business from scratch is tough, really tough. While there will be some excitement and some great days, there will also be many struggles, challenges, and late nights. If you don’t have the necessary passion for your offering, you might quickly start to think that all the hard work it takes to build a startup simply isn’t worth it anymore.

11. Legal Problems

Unfortunately, some promising startups never get the chance to grow due to legal challenges and complexities. A founder without much business experience could end up getting into legal trouble for not having proper licenses, ignoring applicable tax laws, using an incorrect legal structure for the business, and a host of other legal mistakes.

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