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Why Startups Fail & Lessons From Their Failures

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Written by MicroStartups

Many startups begin strong, with the highest energy and the best intentions. However, 70% of new companies won’t last long enough to celebrate their 10th year in the business. Launching a company today has been even more difficult given the fierce competition and the many challenges the business environment continuously brings. 

Why do startups fail? This article explains some of the key reasons and lists some important lessons you can pick up from their failures.

Startups Often Fail Due To Having A Lack Of Funds

About 42% of startups fail because of money, or lack thereof. In most cases, the mistake stems from overlooking or miscalculating how much money is needed to maintain daily operations. This includes overhead expenses, funding payroll and paying 3rd-party vendors, if there are any. About 65% of startups said they’re not fully confident they had enough money to launch their business.  

Having The Wrong Team Causes Startups To Fail

It’s not enough that a business has the right leader; the right team equally pays an important role in realizing the success of any business. If the vision and mission of the business are not clearly explained to the team members, they’re not qualified or they don’t share the same goals as the leader, soon enough the business can crumble. 

Poor Marketing Is A Major Reason For Failure

Marketing is one of the essential keys to a successful startup business — whether big or small. You can have the best product or service in your industry, but if your marketing is poor, expect your business to fail. 

Some businesses are so focused on their funding, they tend to overlook the importance of marketing tools they can utilize to catapult their brand to a more prominent position. 

If There’s A Lack Of Market Need Your Startup Will Fail

You’ve got an outstanding idea. You’ve priced it to perfection, and you’ve marketed it well. You’ve done everything right, but it’s still not selling. That would indicate that there is no real market need for your product.

There could be a few different reasons for this. It might be a product that no one is interested in, or it could be that people just don’t want to switch from the product that they’re currently using. Unfortunately, here, you haven’t done the right research upfront.

What problem is your product solving? How would consumers solve it without your product? If it’s too difficult to switch over, it doesn’t matter how much better your product is – everyone will want to maintain the status quo.

Giving Up Too Soon Might Be Why Your Startup Failed

It can take around about one to two years for a business venture to start being profitable. Until then, you’re going to have to work extremely hard. It’s difficult to motivate yourself to carry on when it seems like your efforts are going nowhere, but perseverance can pay big rewards. If the idea is slowly gaining traction, give it time.

Know Nothing About the Industry? Your Startup Will Fail

This is where self-help books have done us a big disservice. They spout sage advice like, “Follow your passion, and the money will follow.” That’s great advice, if you know something about the industry that you’re moving into.

You can hire people to help you along the way, but you do need to understand the basics if you’re to manage the company effectively. 

Lesson 1: Use Funding Wisely

Regardless of your business size and whether you’re an individual contributor or supported by a venture capitalist, make sure to set a realistic budget. This includes making careful planning and correct projections on expenses. It’s also important not to stretch your budget too much during the first year. This should allow you to thrive in the next coming years. 

Lesson 2: Create a Sound Business Plan

Identifying the product or service to put on the market is just the first of many steps in making a business plan. Startups should also focus on identifying potential problems and prepare possible solutions. Creating small achievable goals along the way is also an important aspect of a sound business plan. 

Lesson 3: Research. Research. Research.

A great business plan involves great research — a lot of it. Excellent and thorough research is the foundation of your business plans and goals. Aside from identifying market demand, research on your desired area and whether that is the best choice for your business. 

Lesson 4: Arm Yourself with Enough Knowledge

While passion is important to start and drive a business, it’s simply not enough. Some entrepreneurs start a business with very little knowledge of how finance, accounting, and marketing work. There are many courses you can take advantage of to get enough knowledge of how these things work. If you have enough capital, hiring experts from the get-go is also helpful.  

Lesson 5: Listen to Feedback

As the entrepreneur, you probably have a very clear vision of where your business is heading. That’s great, and it’s going to help you move forward. You have to be willing to adjust this vision according to the feedback you’ve received.

Startups are always going to be a work in progress. You’ll learn a lot as you go along, and you’ll get a lot of advice. It’s not all going to be good advice, but there’ll be some gems along the way. Be careful to listen carefully to what your clients are telling you. It’s the best way to get them what they want, and it shows them that you value their opinions. That’ll win you their loyalty.

Lesson 6: Do Regular Cost Cutting Exercises

We’ve mentioned that you should use your funding wisely. It’s equally important to constantly look for ways to make your business operations as lean as possible. The more you can cut down on costs, the better your profit margin, and the better your safety net if something starts to go wrong.

What happens if another player enters the market and offers a similar product at reduced rates? By managing your expenses carefully, you’re better protected against financial shocks in the future. 

Final Notes

Many startup businesses share the same goal of becoming the next superstars in the industry, standing side by side Airbnb or Uber. However, that’s not the case for most startups. There are many factors leading to business failures, but they all seem to boil down to careful planning and preparation. However, these failures serve as excellent precautionary measures that every startup business can take advantage of to avoid the dreaded pitfall. 

 

About the author

MicroStartups

A team of writers and marketers, MicroStartups was founded to inspire the entrepreneurial and business community to give back. We believe in business growth through giving and supporting the local community.

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