Why startups fail

Why startups fail

Most entrepreneurs think they are building the next Facebook or Amazon.
The reality is that an estimated 70% to 80% of start-up businesses fail within the first 2 years of operations.

 

  1. Focusing on the product and not the customer

Most of us have come across statements such as “the customer is always right” or “If you can solve a customer’s problems, you can make money”. Most start-up business owners spend too much time building businesses and products for themselves. One of the reasons why startups fail is that they do not understand the preferences, needs and wants of their customers. They are too product oriented and can sometimes develop and perfect products that customers do not want or spend too much on developing products without understanding their customers. Avoid starting businesses to offer products with limited market need.

  1. The lack of a skilled, competent and inexperienced

A strong, passionate, committed and dedicated management team is the heart of any successful business. Being skilled, competent and experienced are factors that contribute to the success of start-ups. Most start-ups have poor management teams that do not even understand the product or service offerings of the business. They have no drive and direction and this often leads to the downfall of most businesses. You get scenarios where only one person is passionate and committed in the business. They often give up along the way as they do not receive the necessary support from their business partners.

  1. Poor leadership

Leadership is a powerful art. If a business is sick, good leadership is one of the best medicines you can give it. Visionary leadership sets the business on a path that helps it focus on achieving its vision.

  1. Lack of focus

Doing too many things at the same time can be a recipe for disaster. This is one of the reasons why some start-ups fail as the business owner attempts to do a number of projects at the same time and then eventually fails.

  1. Inadequate funding for the business
  • Too much debt

Taking on too much debt especially in your first or second year of operations is one of the biggest mistakes you can make when running your business. Short and long term loans attract interest. High interest impacts your overall profits. Over leveraged business start-ups often experience challenges in meeting their short term obligations and find it difficult to pay their operating expenditure.

  • Very little equity

Sometimes it is better to find a business partner with the right skills and experience to inject money in your business than to get a loan from a commercial bank. Having very little capital presents a number of challenges for start-up businesses as most of them even fail to purchase the required capital items and meet their working capital needs.

  1. Lack of strategy

Strategy is a company’s game plan. It provides a sense of direction, outlines measurable goals and outlines the initiatives that are required to achieve the goals. The strategy helps a company to achieve its long term vision.

  1. The lack of a vision and mission

There is power in having a clear vision. Vision gives a company a sense of direction.  The mission gives a company a sense of purpose. Most businesses do not even consider changing or updating their vision statements to reflect the changing business environment. Not having a sense of direction and purpose leads to business failure.

  1. Poor planning

A business plan is a road map for your business. You do not need a 30 page business plan to succeed. Even a business plan on one page can keep your business from failing. Most start-ups do not have strategic business plans and that is one of the main reasons why they fail.