5 Reasons Why Startups Fail and how to Ensure Yours Doesn’t in 2018

by Guest Author on February 6, 2018

in Guest Posts

It’s natural to be optimistic.

After all, who wouldn’t be when you have a creative business idea that you believe can change the world? Unfortunately being optimistic alone is not good enough and 70% of startups know that too well. A prominent study estimates that of all startups only 30% go beyond the first year. That’s heartbreaking

2017 has proven to be a startup giant slayer as well. Much touted startups like Jawbone, Doppler Labs and Squid came crashing down after raising millions in funding. But it’s not all doom and gloom. These startup failures are actually much needed fodder for startups – like yours – who are ready to take the bull by the horns. Here are the top five reasons why startups crumble and what you can do to avoid these pitfalls:

Cashflow Problems

The startup graveyard is lined with companies who choked on cashflow problems. In fact a whopping 82% of startups foldup because of cashflow problems. Several companies file for bankruptcy each year lending credence to the fact that money is a key cog in the startup machinery.

Here’s what you can do. For starters, be realistic. Your startup can start as a dream but it can’t survive as a dream. You must clearly understand your business model and revenue sources. You must have an operating cycle for your cashflow which entails the strategies and systems to manage the flow of money in your company.

Of course (depending on the level of your startup) you should have someone is who technically adept in that field to handle your cashflow but that doesn’t exempt the founder from knowing a thing or two about cashflow. Get books, videos or take a course in that area. It’s too valuable an area to be an ignoramus in.

Failure to connect with Target Audience

The life expectancy of every business rides on the interest of the audience. Unfortunately some startups failed to recognize this and they have paid severely for it. Notable examples include Kodak, IBM and Netflix.
KISSmetric’s Hiten Shah and his cofounder spent a million dollars on a web hosting company that never launched because they forgot about the audience.

Any product or service you come up with must be borne out of your audience’s needs. Some businesses are driven merely by profits but that’s a surefire way to fail. Don’t shove your audience to the backburner because they deserve the front seat. In fact your audience should occupy your thoughts more than any other thing. Use focus groups, phone calls, content marketing, surveys, email campaigns to understand and connect with your target audience well.

You must keep coming up with creative and relevant ways to serve them and deliver real value. When it comes to your audience, don’t just deliver – over deliver!

Failure to Understand the Market

The best metaphor for the business environment is a “warzone.” In war, the cardinal thing is to understand your adversary, their strength and foibles as well as the grounds on which the war is being fought. Nothing must be left to chance. Even luck is a product of hard work. Of all the sins of businesses, none is as unforgivable as failing to understand their market. Business is complex. The market is complex. Only study makes it simple.

42% of businesses collapse because there is an insufficient need for their product or business. 19% also crash out because of competition. You need to know the demand for your product and how it measures up to supply. You also have to understand the things your competition is doing right or wrong and how to offer a unique service.

As a business, there are likely several other businesses who offer the same service. The question then is: What makes you stand out? What is your differential?

Never forget this: customers are not exactly loyal to you, rather they are loyal to the service your offer them.

The Wrong Team

Amazon recently launched its headquarters, a 4-billion dollar rainforest-themed campus, in Seattle. At the heart of this development is the fact that nature helps workers become creative. Amazon like many other giant tech companies knows the value of team – and they will do anything to keep the best crop of talents because they know that 23% of businesses fail because of having the wrong team.

When Leo Laporte founder of Twit Network was asked about the errors he committed in his startup, he said “My biggest mistake was trying to do it all myself. As a founder I felt like I knew everything I needed to know about media, content, even the technology involved to reach my audience. And I did. I just didn’t know anything at all about making a viable business: finance, marketing, advertising, and human resources.”

You might as well be a hybrid of Steve jobs and bill Gates but you can’t do it all alone. If you plan to reach great heights, you need a team – as solid, creative and focused team who share your passion and vision. Your family and friends may be great but ultimately your company should grow beyond just the people around you. Become a leader who has an eye for talents. Always be on the hunt. Create a conducive and collaborative working environment and incentivize your employees. Have a company culture that works.

Lack of effective leadership

John Maxwell wasn’t wrong when he said “Everything rises and falls on leadership.” The leaders of startups often lack the requisite skills and management acumen in handling employees, finances, marketing, scaling etc., and as the business grows the find it harder to navigate the murky waters.

From Netflix to blackberry, the examples of business failure due to leadership are many. Enron has become a byword for corrupt leadership and that all trickled down a set of scrupulous leaders who took everyone for a ride.

As a leader, you must know where your expertise lies and bring in requisite people to execute the technical tasks. Develop a leadership strategy and vision plan. Learn how to attract and manage talent and investors. Ultimately, create a system that can make your business function seamlessly.

Guest article written by: Wisdom Sablah is a freelance writer, content strategist and digital marketer. He is a co-founder of Emerge concepts and Bespokewritings. Reach out to him at Bespokewritings.com

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