Top Reasons Why Startups Don’t Make It

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Imagine putting everything you have – your hopes, dreams, and finances into starting your own business, only to watch it crash and burn. The fear of failure is at the very top – above anything else. On the upside, starting out and succeeding as an entrepreneur has to be one of the greatest rewards in life. So get to know why startups fail and what is needed to avoid failing. Then start your journey to achieve your dreams.

Seldom is a business so in tune with its niche that it can float along with minimal effort. But why do so many startups fail? The reasons run deep, from disharmony on the team to poor cash flow, but here is what you should know before starting out.

Unprofitable business model

A business model is how a company operates and makes money. It forms the backbone of any business and needs to be strong and sustainable for the business to succeed. A startup will eventually fail if it doesn’t have a viable business model. By viability, we mean a model that can generate enough revenue to cover costs and ultimately turn a profit that can sustain the business in the long run.

Your business can choose any of the several types of business models out there. But the model should suit your company, product, and target audience. It also needs to be scalable so you can grow as your customer base expands.

Not having an effective business plan

A good business plan can help you get clear on the direction of your business, identify strategies and an action plan for you to achieve your business goals, and help you secure the financial backing you need to start or grow.

Writing an effective business plan is an important step toward setting up your new business and achieving your business goals. On the flip side, without a plan your business is vulnerable to one of the most common reasons for businesses to fail – mismanagement. Having a business plan will also help you stay focused and on track.

Failure to learn from mistakes

There is nothing wrong with making mistakes but there is something very wrong with not learning from these mistakes. In any startup, there are going to be mistakes, miscalculations, and failures. Most startups don’t have a straight line to success but have many ups and downs along the way.

One of the most common reasons for startup failure is that the startup was unable to learn from the inevitable mistakes and adapt to become more successful. Persistence is very important for startups, but if adjustments to a better way of doing things don’t also take place, a startup may persist itself right out of business. Persistence only works if the business model is sound, and the right decisions are made along the way. 

Inability to adapt

The ability to recognise opportunities and be flexible enough to pivot or adapt is crucial to surviving and thriving. Learn how to wear multiple hats, respond nimbly, and develop new areas of expertise. The most successful entrepreneurs are those willing to adapt – to try new things without sacrificing their vision. Adapting to change can lead to accelerated success. During the early years, the start-up might need to change their product or service again and again, until they are able to find out what works best.

Lack of sales

Sales are everything for a startup. If you have an abundance of sales, cash will flow and if cash flows you can fix anything in the business i.e. marketing, HR, IT, etc. Nothing hurts a new business faster than not reaching its sales goals.

Relying on a few big customers can really hurt your business but over-dependence on one big customer can be catastrophic. Startups may attribute their failures to insufficient startup capital, but the reality is that if you’re not making sales, you’re not making money, and therefore there can be no success.

Without sales, a business cannot hire the calibre of staff required to make it sustainable. Nor can it afford the type of marketing that can make a lasting impact.

Not putting your customer first and not knowing what they want

One of the top reasons why businesses fail is that they focus on their product instead of their customer. Put most of your energy into your customers and explore every possible way how you can meet their needs and smash their expectations. Dig deep to see what they want and what they need. Turn your customers into raving fans, these fans can then tell everybody about your business.

You have to know what your customers want. Too many would-be entrepreneurs go into the market thinking they have a great service or product to offer, but they fail to realise that nobody wants that service or product. By doing your homework and researching your market, you will know exactly how to meet your potential customers’ needs.

Lack of business skills and expertise

Too many entrepreneurs start their businesses because they need a job. They have a vague idea of what they are doing, and they think that because they’re better than their peers, they should make a living doing it. The sad truth is that without business skills and real expertise, these entrepreneurs are destined to struggle.

Poor marketing

Noise matters and no matter how great your product may be, it’s going down if no one knows about it. Poorly managed sales and marketing is a major reason for the failure of many startups. You don’t necessarily need a professional PR team at the beginning, but you need to create a frenzy in social media and in the press about your company and products.

If your business cannot manage marketing properly, no one will know about your product, therefore no one will buy it. Spreading the word may seem a waste of time for some, but it is fundamental for a business to survive.

Running out of cash

This widely given reason doesn’t really explain why a business failed. The money ran out because it stopped coming in, so why did the cash dry up? Was it due to poorly managed costs or because sales weren’t high enough?

Cash flow problems are extremely common among startups and are one of the top reasons for startups to shut down.  New businesses can fail if their pricing is too high or too low. Look at businesses that fail and you’ll find that many of them took on too much debt. Learn to pay strict attention to your finances and keep careful records of all money coming in and going out.

Cash management must be a top priority for startups because if your cash flow doesn’t balance out, you’ll find yourself in deep water fast. That’s a business risk you want to avoid at all costs. At all times you need to know all the numbers in your business; how much money you have, what you owe, what is owed to you, etc.

Hiring the wrong team

One of the biggest challenges that business owners face is hiring, managing, and retaining staff. Establishing a diverse team with complementary skill sets, the right attitude, and values aligned with your business from the start will help you in the long run. It’s really important that you not only attract the right people but create a work culture that makes them want to stay. 

At any stage, a good leader has the charisma and track record to inspire a compelling vision for the company and its future, recruiting committed employees instead of top talent who will fly to the next offer very soon. Employees committed to the company mission and vision will help the founders realise their vision, not so much with “top talent” who will move on to the next offer.

How to avoid failing

It seems that most businesses are destined for failure. But there are key points to not becoming one of them that fails right off the bat.

Have a well-defined vision – Always have a well-defined vision of where you want your business to go. This will be a powerful force behind your success and will serve as a wake-up call when you feel like giving up.

Set goals – Know exactly where you need to be and where you want to be. Without a goal, you’re just wandering aimlessly.

Do research – Know everything about your market. Know what customers want. Know that they will pay. Know their incomes, their desires, and what makes them tick. The more you know, the more you can pitch to them.

Believe in yourself – Have an insatiable drive to win. Visualise the life you have dreamed of until you live it.

Love what you do – If you don’t love what you do, it will show. You must be passionate about your business, or it will just be another job. Follow your heart and intuition. Passion is what drives you to succeed. The only way to do great work is to love what you do.

Learn to adapt – Get out of your comfort zone and innovate. Learn new things and try new things.

Soar with the eagles that fly high – Surround yourself with the positive, the big thinkers and achievers! Get rid of the toxic around you. Remember, you are the sum of the five people you hang around most with.

Don’t quit

No matter how great of a business you have, you are going to have downtimes. There will be periods when things are dragging along, and you question your decision to embark on this path. This is a time to put in extra hours, press harder, and make it work. Keep trying no matter how hard it gets.

Article written by Mike Anderson NSBC Founder & CEO