Posted on: 19/10/2022 by: David Morgan in: Startups
Starting any business is a challenge and the odds are stacked against you with one in three failing during the first year and two out of every three startups closing by the end of year three. Thankfully business owners are hardy souls and instead of being put off by statistics they are fuelled by a belief in what they are doing and a determination to succeed. I mean where would we be if everyone was put off by statistics? With such alarming figures let’s have a look at the main reasons why so many startups fail .
Number one on the list of causes for startups to close is not surprising, they simply ran out of cash or failed to raise new capital. Financial management and planning are essential and without which the results are obvious. Prior to launch and in the early days of operating, it can be easy to get consumed by the amount of work involved and carried away by the excitement and buzz of the enterprise. However, it is vital to have a healthy cashflow and thorough understanding of costs in order to grow the business. Creating a cash flow forecast and adhering to strict budgets will help you plan for the future.
Lack of market need
It sounds pretty obvious that if there is no demand for your product or service then your business isn’t going to last long. A business idea might sound great amongst friends and families but is your offering solving a problem or improving an existing product or service? It is easier to satisfy an existing need than create one and try to convince prospects they need it in their life. Have you identified what your USP is? And it is essential that you carry out thorough market research before launching your venture because doing so may save you a lot of money and heartache further down the road.
Growing too fast
Getting carried away with the early success of a startup can lead to rash decision making and one common mistake is to expand too soon. If you are at the stage where expansion is needed to satisfy ever-increasing demand for your product or service, then just like starting your business, it requires careful planning, research and strategy to succeed. Failure to do so and a business will soon be burdened with additional financial commitments as it strives to meet the new demands that expansion provides.
The wrong team
Almost a quarter of startups fail because of the inefficiencies of the management team. Entrepreneurs have certain skills but don’t necessarily have the business acumen to turn their startup into a success. It’s understandable during the early days that due to a lack of resources the founders try to do everything themselves but as the business grows it is important to hire experienced staff for key roles such as sales, and investment should be directed to this area. When you try and save money by recruiting less talented or inexperienced managers then the implications could be devastating for the business. There is an old adage that says you get what you pay for and this can be applied to staff recruitment.
Timing is crucial. If you release your product too early and it isn’t quite ready to market then early adopters will be disappointed and go elsewhere. This in turn would have a detrimental effect on your business as they share their negative experiences and once your brand or reputation is tarnished it can be difficult to get back on track. Conversely, launching your product too late may mean someone else has beaten you to it and having successfully launched their product are already established in the market.
Many entrepreneurs believe that their product or service is the best available and fail to pay enough attention to the competition. They may have done their research before launching but once you are out there trading you are susceptible to companies copying your offering. It is these new kids on the block that are often the cause of startups failing. Companies with greater resources than you can improve on your product or undercut you on price and before you know it you are desperately trying to claw back your share of the market.
Less common reasons why startups fail include regulatory or legal changes; disharmony among the team or investors; pivoting didn't work; or the enterprise burned out due to a lack of passion.
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