Starting a business is an exciting journey, fraught with challenges lurking around every corner. Millions of new companies are launched yearly, but they soon realize the path to success is not straightforward. Indeed, research shows that around 90% of startups fail, with about 10% calling it a day within the first year.
Understanding why these businesses don’t survive and learning how to avoid the most common pitfalls can help budding entrepreneurs increase their chances of sampling the sweet taste of success. This article explores some of the most common reasons startups fail and provides tips on how to steer clear of these business-ending issues.
Insufficient Market Research
Fail to prepare, prepare to fail is an adage that runs true in business, particularly in the world of startups. Entrepreneurs who perform insufficient market research may not realize that their product or service has established competitors or, worse still, that there is no demand for their wares. Someone may want to launch a betting service but not know that a giant like the MyBookie online sportsbook is a direct rival. Also, they may wrongly assume that if they like their idea, others will, too. Neither situation is ideal.
Would-be businesspeople must thoroughly research their industry’s market. At the very least, they must know everything about their direct competitors, what those rivals do well, and any potential gaps in the market they can fill. Similarly, creating something you think is a groundbreaking product is not enough if there aren’t enough customers willing to pay for it.
Thorough market research is time-consuming but essential. It uncovers potential areas of concern, identifies your target audience, and ensures there is sufficient demand for your business to thrive.
Poor Financial Management
Cash flow problems are among the most common financial issues startups face. Many people underestimate the amount of capital required to sustain a business until it becomes profitable, or they make inaccurate revenue projections that lead to cash shortages.
Some entrepreneurs overspend on unnecessary expenses or try to expand too quickly based on a short period of success. Others don’t set aside enough for unforeseen costs or fail to have large enough reserves to get through a market downturn or an initial lack of customers.
A meticulously prepared plan is the best way to avoid financial mismanagement. Your first port of call should be a detailed budget; ensure your budget has provisions for anticipated and unexpected expenses. Even if you have the utmost confidence in your fledgling business, always have a plan for a worst-case scenario. This way, you are prepared for every eventuality, whether your business is booming from Day 1 or not making a profit until Month 10.
Assembling the Wrong Team
Although it is possible to build a successful business as a one-person outfit, assembling a team of like-minded individuals makes the road to success smoother. Often, startups are founded by groups of acquaintances or friends, but just because you have a strong relationship does not necessarily mean you’ll work well together in a professional setting.
Startups are demanding of those running them, with long working hours and high pressure being the norm. Combining those negatives with people ill-equipped to handle them can quickly lead to conflict, inefficiency, and poor decision-making, an unholy trio that all but guarantees a business’ failure.
Avoid these damaging issues by carefully considering your team’s strengths and weaknesses. In a perfect world, your team members’ skills would complement each other, creating a balance within your business. Don’t be afraid to seek out new team members or outsource work if you discover your team is lacking in some areas. You may have the best designers and engineers in your industry but then have nobody to prepare your accounts or effectively market your product, which leads us to our next issue.
Ineffective Marketing
Even if you have an outstanding product or service and a stellar team prepared to do whatever it takes to succeed, your business has little chance of surviving if you cannot reach your target customers. What is the point of having an excellent product if nobody knows about it? Some entrepreneurs wrongly believe that if they build it, customers will come, but that is rarely the case. Without proper marketing, your product or service can easily become lost in the sea of consumers’ available options.
Ineffective marketing is not only about a lack of investment but also focusing on the wrong channels. For example, if you have a visual product and you are not marketing it on Instagram or Pinterest, you are missing out on thousands of potential customers. Launching a marketing campaign without understanding your audience is a significant waste of time and resources.
Every successful marketing campaign works with a comprehensive strategy and is tailored to a target audience. It is a time-consuming process, which is why even multi-national conglomerates often outsource marketing to a specialized agency. The cost of these experts usually means startups either neglect marketing or do a half-hearted attempt at doing it in-house; both lead to failure.
Conclusion
The road to startup success is filled with challenges that must be overcome. The reality is that approximately 90% of new businesses don’t navigate these challenges and fall by the wayside, with 10% closing their doors within the first 12 months. Do not become another statistic; avoid the common pitfalls highlighted in this article.
Start by conducting thorough market research. Learn everything about your competitors, suppliers, competitors’ suppliers, and target audience.
Create a detailed financial plan that uses conservative revenue projections and allows for unexpected costs should the worst happen. Preparing for a worst-case scenario should help you weather lulls in sales, supply chain delays, or similar situations.
Ensure you build a team where everyone contributes something and, ideally, has skills that complement other members. You want a balance of skills and knowledge rather than several experts in one particular subject or area.
Finally, invest time, effort, and funds into an effective marketing strategy. Shout from the rooftops if you want people to know about your amazing products and services. Be as quiet as a mouse or target the wrong channels if you think your business can survive without customers; it can’t and won’t.
