The Top 8 Reasons Why Start-Ups Fail
There’s no denying that starting a business is a tough gig.
So what goes wrong – and how can you make sure your exciting new venture is one of the winning 5%?
According to leading data crunchers CBInsights, who recently conducted a post mortem of 166 startup failures, there is usually no single reason why new businesses crash and burn – but they’ve identified several recurring themes that add up to the untimely demise of promising new ventures.
Forbes, meanwhile, placed the blame for most new business failures on poor strategic planning and insufficient funding, while Inc.com interprets start-up failure in terms of entrepreneur behaviour flaws.
If all this is making your head spin, here’s a quick overview of the top 8 things that go wrong for start-up businesses.
- A solution without a problem
Most successful businesses don’t start with ideas – they start with NEED. Unless you’re solving a genuine problem, you’ll almost certainly struggle to build a solid market for your product or service.
If you’re still at the thinking stage, start by getting to know your audience and the frustrations they face, and look for ways to make their lives better. If you’ve already come up with your grand idea, talk to the market and gauge their reactions before you spend a cent on trying to develop it into a business
- No access to funding
Unless you want to back your business venture with your personal assets – a very risky move – you’re going to need funding at some point. But the majority of lenders won’t touch a small business until it has some trading history.
Even if you’ve got collateral to offer and a good business model, you’re unlikely to get the time of day from high-street banks – but you might be successful if you approach one of the many alternative small business lenders.
Shaun McGowan from small business loans provider Lend says “Whilst a loan might be possible for early stage SME’s, you can potentially release cash from unpaid invoices through invoice finance or factoring.”
If even the fintech lenders think it’s just too early, don’t despair – crowdfunding and peer-to-peer equity might still offer a path to launching your dream.
- The cash dries up
This is actually the main reason businesses fail once they’re up and running.
Even the most profitable business can go down because of slow-paying customers or seasonal sales fluctuations.
Keep a very close eye on your cash flow and be prepared to shore it up with business financing. If you can’t get approval for an on-call facility like an overdraft, you may be able to turn to invoice factoring or merchant cash advances to smooth out your working capital woes.
- Brought down by the competition
If there are existing competitors in your target market you can expect them to act swiftly if you try to grab their market share. And if you can do it, there’s nothing to stop someone else from coming up right behind you.
As a new entrant you have all the hard grind of building a customer base ahead of you, while incumbents who already have a loyal tribe may be able to adjust their business model and wipe out your USP at the drop of a hat.
If you can, consider future-proofing your innovative idea with a patent or other IP protection.
- There’s no money in it
You’ve tested the market and people LOVE your idea. They’re ready to download your app or pile onto your platform in their thousands. But will they pay for it?
When you’re building your business plan, look for solid, sustainable ways to monetise your idea. Unless you’re destined to become a social media giant like Facebook, there’s only so far you can expect to go selling affiliate rights and advertising.
- Not having the right people
Even Richard Branson doesn’t do it alone. Smart entrepreneurs recognise their limitations, and surround themselves with people whose strengths complement their own. Sometimes having a mentor or coach as a sounding board for ideas can help. At Grapes to Grange we undertake a number of programs and workshops to improve business and team performance, and focus very strongly on the benefit of extended DISC profiling to help choose employees and then get the best out of them.
From the outset, make sure you’re backed by all thetechnical capabilities, business acumen and marketing expertise you need to transform your grand vision into a viable business.
- The product doesn’t deliver
Once you get the attention of a potential customer, you have just one chance to prove yourself.
In the early stages, your product needs to deliver core, problem-solving functionality – and nothing else. Don’t oversell your product or try to distract users – you can add all the bells and whistles later, once you’ve proved your worth and built customer loyalty.
- Tunnel vision
Customers are fickle. Needs evolve. Preferences change. Just because your business model worked yesterday, doesn’t mean it will tomorrow (when was the last time you bought a DVD or got a photo printed).
Successful business requires constant adaptation – think of business planning and market research as essential, ongoing processes and always listen to your customers’ feedback.
I’d appreciate your comments and thoughts about which of these impact more on your business.