The most common reasons why startups fail

In the startup world, a failure is considered to be a learning opportunity. But the reality is that failing sucks. And according to an analysis of startup businesses, almost all new companies fail. To reach success, entrepreneurs need to be aware of common challenges. So they don’t make the same mistakes that others have already made. Here are some of the most common reasons why startups fail and ways to avoid it.

A notebook to write in as you familiarize yourself with the most common reasons why startups fail.
Before starting a business, familiarize yourself with the most common reasons why startups fail.

Lack of market need is one of the most common reasons why startups fail

One of the most common reasons why startups fail is because they create a product that the market just doesn’t want. And the market fit is essential. Companies may have the solution to their problem but didn’t take into account that other people didn’t have it. Maybe the market has better products. Or the market just isn’t ready for it. Startup companies tend to believe their invention is so appealing that the market will beg for it. And the money will just flow in. But, they do not fully understand what their product might be able to achieve. Especially in the early stages. So, talk to people before you build anything, and find effective guidelines to create the new product launch plan for marketing.

Running out of cash

Everyone knows that running out of money is one of the most common reasons why startups fail. Raising capital to finance building a company isn’t enough. Even when you have great resources, you’re not secure. Every business has day-to-day affairs and costs that can amount to thousands of dollars in a month. Companies fail to keep working capital to meet the most immediate needs, like allowing credit for a supply. In order to move from startup to scaleup, companies need to raise additional capital.

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The wrong team is another one of the most common reasons why startups fail

Your team has the power to make-or-break your startup, as 23 percent of failed startups know all too well. For the success of a startup, it is crucial to have people that are highly motivated, persistent, and have diverse skills. Also, the team must be united around a common vision and have an agreement upon the long-term goals. This way, everyone will remain on the same page as the startup grows.

A group of young professionals fist-bumping.
Assemble a group of people that have the right skills for the job, and you’ll avoid your startup failing.

Competition

Too much competition is also one of the most common reasons why startups fail. Once you build a better product than the existing one, some large companies or startups will probably enter the space and chip away at your market share. Even though the first-mover advantage can be very beneficial, a second-mover advantage provides new competitors to quickly capture market share in a market that you helped validate. Then you might need to relocate and find a better place for your company. But make sure you always hire reputable office movers.

Also, keep in mind that consumers are more likely to trust a bigger company, because they have years of good reputation. And if we’re talking about a startup, that means that it has been around for a year or so.

Pricing/cost issues

Finding out how to price is a challenge. But for 18 percent of startups, it was a reason to fail. For new companies, it’s a permanent compromising act between pricing high enough to maintain healthy margins and cover operating costs. And at the same time having the price low enough to attract customers.

Figure out how to price your product by putting a price on it and see what happens. If you get a huge number of signups, you can maybe raise the price. In the case that no one bites, try lowering the price.

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Poor product

Startup companies sometimes just come up short when it comes to product. Maybe it’s because they don’t know what they’re doing. Or because they didn’t understand their field properly before jumping in. No matter the reasons, founders can release products that don’t fully appeal to customers. This is the reason why 17 percent of startups fail. So, it’s very important to fully understand target consumer, the problem or pain point product solving, and how it helps to avoiding failing.

Lack of business skills – in founders and the team

Many founders are unable to do all the things that will cause the business to take off. They need to focus on industries that appreciate their skills and educational background, besides professional expertise. This will increase their chances of success. And the practice and dedication they’ll inject in the business won’t be a difficulty for them. The founder skills must be complemented with the team ones. Put someone good at sales, someone good at management and bookkeeping. And someone good at marketing and product development. Customer service and business development employees can land in the company later. In case you or your co-founders don’t have the skills or abilities to get your company going, you should read, study, learn and experience theoretical and practical knowledge. This will give you the upper hand against your competitors and prevent startup fail.

Poor marketing

It doesn’t matter how great your product is, it’ll fail if no one knows about it. Poor marketing is very important and one of the most common reasons why startups fail. The target audience isn’t aware of the product’s existence, and therefore the company will not have success. You don’t need a professional PR team in the beginning. But learn from the startup fail pile and don’t ignore marketing.

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When you get published in the magazines and websites, make sure they are authoritative and popular for your audience. Spreading the word can seem like a waste of time, but it is crucial for a business to survive. So, if you’re asking how to expand your business in no time, marketing is the correct answer.

A young professional looking at an important chart.

Other common reasons why startups fail

Besides this list of the most common reasons why startups fail, here are some additional mistakes that people make:

  • Ignore Customers
  • Product Mistimed
  • Lose Focus
  • Disharmony on Team/Investors
  • Pivot Gone South
  • Lack of Passion
  • Bad Location
  • No Financing/Investor Interest
  • Legal Challenges
  • Don’t Use Network/Advisors
  • Burnout
  • Failure to Pivot

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