3 Reasons Why So Many New Startups Fail

//3 Reasons Why So Many New Startups Fail

3 Reasons Why So Many New Startups Fail

If you’re a budding entrepreneur and this is your first venture, you are bound to commit some mistakes. However, there are some common errors that most new entrepreneurs make that can be easily avoided. In this article, we’re going to look some of the main reasons why so many new startups fail and we’ll also look at the alternatives so that your small business does not fail.

No Market for the Idea

Many startups have a great idea but they lack a good plan for getting the idea to market. This has prompted many new entrepreneurs to go back to school, with many deciding to get an MBA online from institutions such as Villanova University.

Not Enough Cash Flow

Insufficient cash flow kills many businesses. Growing too fast on the expectation that earnings will catch up causes a number of startups and even mature businesses to fail; startups are more prone to expanding too fast in response to capital infusions from investors and loans, whereas established businesses are more likely to grow too fast with a debt fueled acquisition or expansion that ends up costing more than they expected. A Fractl study found that around a third of startups in Silicon Valley failed because they either couldn’t get initial funding or ran out of cash.

Debt often affects small businesses, and people sometimes go through extreme means to inject new cash into their venture. People quit their jobs and live off credit cards to focus on developing their idea instead of working on the project on weekends and evenings. They take on personal debt like mortgaging a house to fund the initial startup and have no margin when they hit the first speed bump. Financing to fund the business and then using personal assets to try to keep it going when the project is sinking leads the entrepreneur to lose everything when they can’t keep throwing money into the failing project.

Arrogance

Arrogance causes a number of startups to fail. Refusing to use a network or advisors to avoid mistakes and basing decisions for launch on a founder’s hunch instead of data driven market timing were factors in around 10% of startup failures. Bad product designs sometimes made worse by inventors unwilling to change the product to fit customer expectations or business requirements contribute to a similar number of failures.

Many companies create a product or service and discover after launch that they need to change the product to fit a shifting market, alter a distribution model for economic reasons, or change because someone else has come to market with a better version of their product. Refusing to pivot was found to be responsible for around 7% of startup failures by CB Insights, while pivots gone wrong killed twice as many startups.

If you manage to steer away from the mistakes in this article, you will significantly improve your chances of your startup being a success. Assuming you know best and acting on that belief without the data driven decisions necessary to business success kill many startups. Picking a business model you can’t follow through on kills many businesses, while growing too fast without managing cash flow kills even many established businesses. Also, not having the competence to create a solid business plan kills many businesses as well, hence why it would be wise to at least consider getting a post graduate education or checking some of the many online MBA learning resources available to new entrepreneurs.

By | 2017-02-07T21:24:34+00:00 February 7th, 2017|Articles|Comments Off on 3 Reasons Why So Many New Startups Fail