6 Major Reasons Why Startups Fail

Many people dream of the day when they can start their own businesses. Following their inspiration, and aiming to fill that gap in the market, some businesses can be hasty and over-confident in their approach. That’s why between 30-50% of new startup businesses fail in the first year, with that number rising to 80% in the first two years.

If you’re thinking of starting your own business, or perhaps you’re just getting going, understanding why businesses struggle and even cease to exist is key to your potential success.

Financial frivolity

It can be tempting when starting a business to go all out. Well, if you’re starting a business, you’d as well put your money where your mouth is, hey?

Blowing out on a prestigious office, a fleet of company cars and a break out room complete with a climbing wall and the professional standard pool table is fine if you’re Facebook. But even those tech behemoths started in someone’s garage.

In the early days, your financial outlay should be on the essentials. The space to conduct business effectively, the equipment you need to do that job, and just enough staff to make sure you can actually get some sleep and go to the restroom. Then, when you see that you’re outgrowing your surroundings, that’s when you start to look to upgrade.

Like a newborn baby, let your business outgrow its crib. Don’t put it in a king-size four-poster bed from day one…

Not valuing customers

Every business lives or dies on the strength of its customer service. After all, why would you come back to a company if your custom doesn’t appear to be appreciated?

Failure to provide a good quality service, especially in the early days, can really hamper the growth of a startup.

The customer experience should be built into your service as an essential part of your branding because in our era of online feedback we can easily find someone who will treat us better.  And, by providing top-quality customer service, you’ll also be creating brand evangelists. Word of mouth is powerful stuff, and it’s free too… You just have to give people a reason to remember you and pass on their experience.

Poor leadership

The leadership of a company has a huge part to play in the success of its endeavors. Bad decision making, poor organizational skills, lack of discipline, or little respect from your employees all create a recipe for failure.

If you’re planning to start a business and you’re not sure you have the skills to handle the management side, you can always outsource the daily handling of operations. Your general manager is, of course, answerable to you, so the buck stops with whatever you say. Especially as you hold the purse strings.

Another way to tackle a lack of confidence with your leadership skills is by training, or getting yourself a mentor. We’re not all born leaders, and that’s fine. But you can develop your skills, learn how to handle people, and read up on the ins and outs of business management before you find yourself out of your depth.

Being too general

Identifying your niche is the best way to succeed in the early days of a startup, so don’t try and offer something to everyone. Most successful startups have come with a very simple business model that then expands over time as their revenue and their brand recognition Improve.

An example of a recent successful startup is the ethical shoe brand Baabuk, whose specialty is wool shoes. They haven’t launched into other types of clothing or tried to offer a line of woolly knitwear. Their thing is wool shoes, and that’s what they’ve focused on (for now).

There are countless businesses that have gone under by trying to offer too much straight from the start. Stick with what you know and see how you go.

Poor communication

You might have the potential product of the year, or maybe the century. But what good is it if you can’t convey that message to your ideal client base?

It could be a badly written website or printed material, inadequate social media, or just plain not bothering to put the information out there at all. How are people going to know how great your product is if you can’t get the message out?

Using some marketing expertise makes a huge difference in getting the word out. In our digital age, the absolute minimum is a well written and designed website. Social media is also a very important factor in getting your brand out there, so neglect your promotional content at your peril.

Expect the unexpected

This will perhaps come down to planning and risk assessment across your whole business model. You might be relying on favorable conditions, but what happens if the worst comes to the worst? Maybe a change in local legislation makes your service irrelevant, or perhaps the supply of your raw materials is affected by a flood or hurricane.

Whatever you’re offering, understanding what could happen, and what the worst-case scenario is will help you prepare for potential disaster. Build a plan B and a Plan C into your business plan, because in the early days of a startup especially, anything can and usually does happen.