When you first start your own business, it seems like the most exciting and promising thing to do. You can now work your own hours, you can follow your passion, you can choose the people you work with, and above all, you can now control your destiny. However, making money and being successful in business can be much more challenging than you think.
You will have to face many challenges as you grow your company and build your brand, and not all of them are pleasant ones. Here are seven of the most common reasons why startups fail.
Lack of Vision
A solid business plan is necessary, but even a solid plan will falter without vision. It’s not enough for your product or service to be helpful. You need to develop and implement high-impact marketing campaigns, digital media, and other tools to help potential clients understand how your product solves their problems.
What are they struggling with? But how does your product fix those struggles? If you cannot explain all of that in less than ten seconds, then perhaps it is not worth pursuing in the first place. On the other hand, investing time and energy into building something nobody wants is one of the easiest ways to see your company go down in flames—make sure it never happens.
If you are feeling stuck, maybe it’s time to try asking questions such as:
- What problem does my startup solve?
- How much better is my solution (product, service, idea) than anything else?
- Why should people buy from me instead of a competitor?
- How can I get them to buy what I have to offer as soon as possible (or at least before anyone else)?
These questions will put some serious ideas on paper — they may be exactly what you need to move forward. But, whatever happens, remember that changing course when necessary is essential if you want to seize the chance of being successful in business.
Lack of Planning
There is a common misconception that only large corporations need formal planning. However, startup ventures also require proper, well-defined plans to help them chalk out a direction for the company’s future.
It is essential to understand that startups are smaller businesses, so they are not exempt from following a solid business plan. However, an entrepreneur has no place moving forward without a clear idea of where their company is headed. Therefore, a business plan should include three key areas:
- Your current situation
- Your company’s goals
- Your plan of action (strategy)
If you don’t have a strong business foundation, you’ll never be able to build something substantial. Moreover, if your startup fails in its early stages, it will undoubtedly impact your ability to raise venture capital, ultimately preventing you from growing into an even bigger company.
At first, take some time to sit down and figure out your roadmap for success, regardless of how small you believe your business to be at first.
Lack of Focus
So many new ventures try to be all things to all people. The result? Everything ends up mediocre, which is worse than being outright bad. When you open a business, think of your product or service as a core competency rather than trying to be everything to everyone. Instead of writing a business plan that’s ten pages long, figure out your strategy with a one-page mission statement—and then execute!
Everything else is secondary. It will take time and effort, but once you’ve created a vision people can get behind, your brand will resonate with customers in ways no other company will. After all, at its heart, brand building isn’t just marketing — it’s storytelling that speaks to customers’ needs and keeps them coming back again and again for more great stuff.
Not Enough Cash Flow
The most common reason for startup failure is running out of cash before reaching your initial goal. One problem many entrepreneurs face is that they don’t have a clear idea of how much money they need. That can lead to problems down the road, like having too little cash on hand or waiting until things are falling apart to think about getting funding. To mitigate these risks, spend some time figuring out just how much your business will cost (or, at least, understand what expenses you can expect).
Also, consider looking into an alternative financing strategy like bootstrapping, where you pay for your own company by using personal savings and sweat equity instead of taking out loans or other funding options. For example, some founders only raise outside funding after their businesses get off to a solid start. It may sound crazy, but if investors aren’t interested in your business right now, it’s better to focus all of your energy on fundraising.
Raising capital shouldn’t be an end goal; rather, it should be a way to get closer to success while also saving time and potentially money.
Marketing is probably one of your most significant areas of concern when you’re launching a new business. How are people going to find out about your product? Are you going to be able to convey what your company does in a way that resonates with customers?
You’ll need all of these questions answered and many more before you can start attracting paying customers. Before implementing any actual marketing plans, conduct thorough research on industry best practices for keeping existing customers happy and engaging potential new ones.
Getting that aspect right will go a long way toward ensuring your business sticks around for the long term. Once you have everything mapped out, speak with a professional in marketing strategy to ensure your plan has maximum impact.
A Bad Team
If you are starting a business on your own, you will likely have to wear many hats. Some people are great solo entrepreneurs who can take on any challenge by themselves. Still, not everyone is cut out for solo ventures. While having a partner or two isn’t an automatic safeguard against failure, having more than one person with diverse skill sets and opinions can help ensure that all bases are covered.
Plus, if someone shares your vision, they’ll be more inclined to stick with it when things get tough, whether internal or external challenges. If you don’t have co-founders or employees yet, make sure that you at least surround yourself with colleagues who share your entrepreneurial goals and help keep each other accountable for finding solutions.
This is a hard one to admit, but passion can be overrated. Are you genuinely committed enough to succeed if you don’t have a burning desire for your business idea? Think about how much time, energy, money, etc., you will put into your startup. If that doesn’t scare you off a little (or at least fill you with anticipation), your idea isn’t worth pursuing.
In conclusion, new startups are prone to failure for various reasons you might overlook as minor and irrelevant. To prevent such collapses in your ongoing and new business ventures, keep these reasons for failure in mind before implementing a business idea on your own.
Most of these topics are discussed in my two books:
Being A Visionary: Going After Your Vision
Being A Visionary: Going After Your Vision Workbook