There is an old saying that goes – “Fortune favors the bold”. But, in reality, fortune favors the prepared, and if you truly want to create something that will last and that is more likely to succeed, this is the way to go.
So, here are 10 common reasons why startups fail – and more importantly, how to avoid them.
Is there a market need? When you start a new company, ask yourself which problems are you actually trying to solve. Do you offer services that people can actually benefit from? Are you offering the same quality service at a lower price? And also, how many people might be interested in acquiring your services?
If you are just trying to bring sand to the beach, don’t expect any particular hype about your startup, because what you are selling is basically redundant.
Probably the main reason why this factor is a great contributor to startup failure is because people tried to hitch themselves to some bandwagon, hoping that they could outshine the original. Truth be told, some of them managed to pull it off, but a great number of business owners, either jumped on too late, or simply made a poor replica that no one was interested in.
2. Rapid decrease in capital
Well, this one is rather obvious; if you don’t have any money to keep going, you will simply shut down. However, the main reason why this occurs is miscalculation, and lack of emergency funds.
Every business witnesses a recession, or is forced to trim down its working force, and it doesn’t necessarily have something to do with your product. When the economy is in a bad state, we all suffer.
In other words, when you are calculating the necessary budget, you need to be as meticulous as possible, and always have enough finances in the emergency fund just in case you overlook something. If you are taking a leap of faith, then remember that the odds are against you. Moreover, you might not generate enough resources, and the reasons for that could be numerous.
3. Wrong teammates
It’s important to be selective of your workforce. Sure, you might want to do a family member a favor, or to hire a friend you trust, etc. However, the startup period is really an essential part of your career, and the people you work with need to be fully competent and up to the task at hand.
Don’t hire someone who follows blindly and doesn’t question any of your decisions. Hire people who have constructive ideas, people who know the market, and people who can see the potential problems and take necessary action to mitigate the chances of a bad outcome.
If you surround yourself with people who respond with “Yes, boss”, you will create a bubble filled with your echo, without a good source for second opinions. You need a team with a diverse skillset, and more importantly, a team of people who want to collaborate and work with one another.
4. Pricing and cost issues
Pricing can be a real nightmare, especially if production costs for your product are high. Bigger companies tend to have their own factories, thereby they can manufacture goods at a lower price and offer better deals.
Another issue is competitor pricing. If your products are equal in quality, the determining factor will clearly be the price, or the quality of your customer service. It was already mentioned how one of the reasons for failure is loss of capital; well, the pricing issue is one of the reasons why that happens.
In other words, in order to generate enough revenue, it’s important that your top clients are always satisfied and loyal, because then, you can demand a slightly higher price than your competitors, since they will be willing to pay a bit extra for the reliability you provide.
5. Tight competition
Truth be told, the competition should not be on your primary list of concerns, if you are already in business. This is a more important element before you start, but even if it doesn’t pose too much danger, it shouldn’t be ignored.
You should always be aware of the type of service they offer, and step up your game if necessary. For example, your competitors might have slightly higher prices, but at the same time, they offer free delivery. These are useful pieces of information that can dictate your future decisions and reshape your business model.
6. Poor product quality
How is this not number one, right? Well, this does not imply that your product is terrible, since that wouldn’t be a small business, it would be a scam.
Poor product quality refers to products that weren’t, in a way, user-friendly enough to generate the necessary hype. This usually occurs when developers do not know their target market very well.
For example, when you develop a really helpful piece of software, but the interface is too confusing, its usability plummets. These problems can be easily avoided by beta and alpha testing for example, so that when the final version is up and running, people will be able to get a hang of it easily.
7. Ignoring consumers
You might think that your product is brilliant and you might think that it deserves to be praised more, but the true judges of its quality and usability are your consumers.
As a small business owner, you do not have the commodity to dictate trends and expect others to follow. You need to adapt and appreciate constructive feedback.
One of the main reasons why people prefer small businesses over big companies, is because small businesses tend to appreciate their opinion more. Their complaint is addressed with care, and good suggestions are used as a strategy for improvement. So, if your consumers are ignored, there is a chance your startup will fail.
8. Poor marketing
People will not readily trust you if they have never heard of you. To be precise, they won’t trust you if they can’t find out who you are.
If you want to appear legit, you need some sort of marketing, something that vouches for you as a provider. You’ll need a high quality website, and an online store, along with social network pages, since this is basically your small business starter kit.
There is no need to spend tons of cash on TV commercials and billboards, but without a website, and without any existing customer review or feedback, you won’t come off as a trustworthy business owner.
9. Bad location
The location has some potential to harm your income, and it all depends on what you are selling. Nowadays, people can order items or services online, so the location is rarely an obstacle nowadays.
However, if someone needs to come over, and you are really far away, that can harm your chances. Or, if you need to come over and spend a lot of money on gas, that can be a reason for lower income and lack of time. So, it all depends on the type of business you are running.
10. Lack of investors
Lastly, if you have no investors for a good startup fund, there is good chance that your business venture will not raise the cash it needs to sustain itself.
However, nowadays, more and more crowdfunding platforms are popping up, and if your idea is good, and if you can sell it to the people, you’ll hardly encounter any problems with investors.
In other words, if you have something that people like, chances are that investors won’t be your problem, but if you don’t know how to present your pitch and convince them to invest, then it will likely result in failure, because the more you get refused, the more difficult it will be to convince new people to invest.
Well, there you have it, these are the factors that are likely to cause startup failure, so it’s up to you to figure out how to lower those risks and secure a better future for your business.
Do not rush into anything. Think it through, and try not to make too many mistakes along the way. As you can see, it’s always better to be cautious than to rely on sheer optimism to get you through the rough patch.
This article has been edited and condensed.
Yogesh Choudhary is a marketer, dntrepreneur and writer. As CEO and Growth catalyst of Finoit.com, he manages strategic direction, sales enablement and digital marketing arm of the organization. Connect with @yogeshchoudhary on Twitter.
© YFS Magazine. All Rights Reserved. Copying prohibited. All material is protected by U.S. and international copyright laws. Unauthorized reproduction or distribution of this material is prohibited. Sharing of this material under Attribution-NonCommercial-NoDerivatives 4.0 International terms, listed here, is permitted.