One of the most thrilling things you can embark upon is starting your very own Business. Sadly, the very harsh reality is that 90% of all startups will fail before their first few years are up. Entrepreneurs often run into such hurdles that include, but are not limited to: lack of capital, poor market research, or even bad planning. The entrepreneurs that intend to create businesses need to understand the crippling issues that are likely going to arise, and the ways in which they can be mitigated. Understanding the damages that can be done, while also being resilient enough to survive themselves is the sign of smart businesses. The reasons behind the failures of so many startups are the basis of this article.
Why Startups Fail, and Smart Businesses Survive
For a business to be effective, simply understanding the barriers they face is an adequate first step. Here is a list of reasons as to why businesses fail.
Absence of Required Market Need
While it may not be the only cause, it is important to note that the majority of the time a startup will fail because they generated the idea for a product or service that is not needed by the market. Entrepreneurs often times believe that they are innovators in their field and that their great ideas will be accepted as needed. The reality is that innovation means very little without creating a market or service for it.
Practical Note: Before scaling, ensure that you carry out surveys, have interviews, or complete a small pilot launch. Before doing so, you must ensure that you have adequate research to show that a market need is present.
Ineffective Cash Flow Management
The majority of entrepreneurs neglect the impact and importance of cash flow management. It is highly common for businesses to run out of capital before hitting the profitability milestone. Budgeting is very important to avoid cash depletion during the important stages of marketing, development, and operations.
Practical Note: Monitor and limit expenses. Contingency plans are necessary for the initial stages, then avoid extra expenses.
Weak Business Model
Even superb ideas can go to waste due to poor business modeling. Reliance on user growth without having a clear, quantifiable, and repeatable way of monetizing the business is a guaranteed failure.
Practical Note: Revenue modeling can and must be tested. Continue iterating the business model based on the received metrics, context, and feedback.
Team Issues
Startups are defined by the collective, great teams. Poor leadership, lack of domain expertise, and not managing internal conflicts typically lead to failure. Founders face the challenge of poor task allocation, role rides, and inadequate management.
Practical Note: Promote a complementary team, where members shoot for the same objectives, to defend against dual competing, and promote a robust diverse skill set.
Overlooking the Competition
It is common for entrepreneurs to believe their idea is original. Most markets are competitive. Not properly analyzing competition, setting themselves apart, and failing to understand the direction the market is shifting towards spells disaster for any entrepreneur.
Practical Note: Participate in competitor analysis. What is your competitor doing? Based on any findings, alter your unique selling proposition (USP) to ensure a competitive edge.
Inefficient Marketing and Customer Acquisition
When a product is created, there is nothing that customers can do without strong marketing in place. Customers are the lifeblood of an organization, and without them in place, any business is doomed to fail. Startups do marketing for their audience to the extent that their brand is not visible and their sales are suffering. It is the audience that needs to market their product.
Practical Note: Your marketing should heavily prioritize funneling efforts towards digital marketing for social media campaigns and targeted advertising while monitoring ROI.
How Smart Businesses Survive
Concentrate on the Real Problem
Creating products is the easiest part of any startup. There are many entrepreneurs who believe that the more ideas they generate and the more products they build, the more successful their business will be. Transformational businesses are those that simply address a problem, and often, they are not unique. When there is complexity, there is often confusion. That is when many pivot to many obscure ideas. Transformational businesses are not complex.
Practical Note: Utilize budgeting, financial forecasting, and periodic assessments to maximize the impact of available funds.
Agile Business Models
An adaptive response to changes in the marketplace is an important characteristic of a surviving business. The ability to be flexible in pricing, revenue streams, and services is important for a startup to be able to pivot.
Practical Note: Cultivate an agile culture where testing, learning, and adapting become core aspects of the organizational culture.
Strong Leadership and Team Dynamics
Most surviving startups have visionary leaders who inspire, empower, and cultivate a healthy work environment. The cohesion and skill of the team is important for overcoming organizational barriers and growing the business.
Practical Note: Enhance team-building, coaching, and training activities to improve collaboration and leadership.
Smart Marketing and Brand Positioning
Survival of a startup is also dependent on how the business markets itself. Startups who effectively communicate their value, connect with their target customers, and inspire brand loyalty, outpace their competition.
Practical Note: Use data analysis to improve your marketing strategies, and streamline your approach to improve reach and effectiveness to communicate with the target customers.
Starting Pitfalls vs Solutions
| Starting Pitfall | Starting Solution |
|---|---|
| Launching with no market demand | Conduct market research and build demand |
| Financial mismanagement | Track cash flow, budget, and plan financially |
| Business model grievance | Test revenue streams and construct models |
| Leadership and team disparities | Build a strong, accountable team |
| Ignoring counterfeits | Consistent analysis of competitors and refine USP |
| Marketing Management | Significant and tangible ROI |
Closing Thoughts
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Validate before launch: Ensure that the service/product satisfies a market need. Testing on a small scale can save costly mistakes.
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Financial Management: Stay disciplined and monitor cash flow.
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Adapt and Overcome: Exhibit flexibility in your business model, your market strategy, and your team in order to quickly capitalize on constructive changes.
The Risks of Starting a Business
Starting a business is hard. It’s also risky, as evidenced by the fact most new startups go broke. But, by studying the mistakes made by the other 9 out of 10 failed startups, a new entrepreneur can greatly increase their odds of success. The most successful companies are the ones that solve a problem, manage their finances well, hire a good team, and are flexible to what the market wants. Starting a new business is tough, but there are multiple strategies that can be used to ensure that your company can do more than survive, but truly succeed.
For more on the success of startups and other business strategies, and entrepreneurship, seek out MBM (Market Business Magazine).
A new entrepreneur must be as informed as possible to maximize their chances of success, and the most successful startup entrepreneurs are the most informed.
