Many people dream about entrepreneurship, but it becomes difficult to execute an intended plan due to a lack of organization and resources, resulting in a start-up failure. Intelligent entrepreneurs learn from others’ mistakes and try not to replicate the same errors.
They all know one thing: 90% of the businesses fail within the first three years of inception makes it even dreadful.
Rather than going into the history books as a start-up that failed, these entrepreneurs become successful and leave a lasting impression in their market.
In this article, we list some common reasons for start-up failure.
One common reason for startup failure is that there is little or no market for products or services. When there is no demand for your product, your product will not have any sales, resulting in losses, and eventually, your start-up will fail.
But the trickiest part is creating a market for products or services that answers some pain points of your customers. That’s why before launching a new product, companies usually prefer to conduct demand analysis for products to validate the feasibility of an idea.
Using demand analysis, companies can forecast the possible sales of their product and make key business decisions. For instance, when the demand for a product is high, you will witness higher sales. Based on this, your company can decide whether to scale up or scale down the production process.
Another advantage of conducting demand analysis is that it helps in deciding a price. For instance, when demand is high, customers will not mind paying extra to buy your products. So, to hit the bullseye every time, you need to familiarize yourself with your target audience’s current market conditions and requirements.
How to avoid market problems? Before you venture into the vast ocean of creating and launching new products, dip your feet in the water and use platforms like Attest to carry out a demand analysis for your product. It will help you decode things that you may take for granted. Conducting demand analysis at the ideation stage can help you develop products that deliver excellent results.
Failure of business model
Have you ever seen a mother finding faults in their children? Probably not. The same holds for start-up businesses. Often, entrepreneurs are emotionally attached to their website or product and become too optimistic about the ease of acquiring customers. They live in a fairyland where they expect a customer to come knocking on their door to buy their products.
Though it may happen with the first few customers, attracting customers willing to consume your products becomes an ardent task. In many cases, your customer acquisition cost (CAC) will be way higher than the customer’s lifetime value, resulting in losses and ensuring you go out of customers sooner or later.
It’s not the planning that lets a start-up down. Instead, the fault is in their business model. When creating a business model, focus on two critical aspects: Is there a scalable way to acquire potential customers? Is it possible to acquire these customers at a lower cost?
A business model that has a positive answer to these questions is the one that quickly passes the ignition troubles.
How to avoid the failure of a business model? As a general rule of thumb, a successful start-up is when the CAC is less than the LTV.
Running out of cash
Regardless of how passionate you’re about a business model or how innovative your idea is, you need to pay dues to your employees and vendors to survive. In short, it’s cash flow that keeps your business alive.
Start-up companies that don’t keep a record of accounts often fail to take adequate measures on time. Also, another reason why start-ups fail due to low cash flow is that management fails to achieve their intended financial milestone before cash runs out.
In a quest to make a business profitable, many start-ups fail to notice that a product once liked by customers is slowly going out of the market. This means that founders and entrepreneurs don’t keep track of KPIs that they need to show for the next round of funding or investment. These are early indicators of a business that isn’t keeping track of their cash flows.
Failing to achieve the required metrics and KPIs and spending without keeping track of them can result in a business witnessing low ROI that can cause their failure.
How to avoid running out of cash? Start-ups need to keep a hawk-eye on accounts and understand how long they can continue their business with cash flow in hand. Also, founders and CEOs of start-ups should explore and secure funding options before it’s too late to revive their business.
Lack of passion and domain expertise
Though your idea may be revolutionary, one common reason for start-up failure is a lack of passion and knowledge of a domain. For example, starting a company that provides email marketing services, when the founders have experience creating financial products, the odds of success are low.
If the founders have prior-in depth experience in email marketing, it becomes easy to design email and create email campaigns that resonate and provide the desired results.
Interestingly, when founders have prior experience and domain knowledge, they inject their experience and passion into building a product or services that resonates with their target audience.
When you have passion in a particular field, investors will find your business attractive. It will help you overcome the fear of failure. Your customers will appreciate your integrity, resulting in long-term success.
According to research, the role of an entrepreneur is important for start-up success. Their business-savvy knowledge and passion for a particular domain will help a company taste success and prosper.
How to remain passionate and focused? Start a business only in an area where you have domain expertise and don’t get carried away with every new idea you come across. Solve your customer’s pain points before thinking about launching new products.
Wrong team selection
Hiring self-centered and overly emotional employees can be a mistake that could lead to your downfall. Conflicts and disharmony among your team members destroy a company’s value and its culture. Main reasons why nailing your candidate selection process is critical.
Successful start-ups usually hire people who are knowledgeable and exhibit great emotional intelligence and interpersonal skills. For instance, there is no point in hiring an MBA graduate for an entry-level role.
The employee is likely to remain disengaged at work, and this could spoil your company’s culture and reduce overall workplace productivity.
Poor team management is poor execution, leading to issues with products not getting built correctly or on time. Such a disorganized team is often weak on strategy and fails to live up to the expectation of their target audience.
How to avoid wrong team selection? Management needs to ensure that employee conflicts are resolved before they become big and ensure that you don’t hire toxic elements in their workforce. So, when hiring employees, make sure you hire someone who fits your company’s culture.
Poor marketing skills
Creating a revolutionary product or service is one side of a coin and marketing it to your target audience is another. Unless your customers know about your products, it’s nearly impossible to sell your products.
That’s why you need to focus on building a marketing management team that takes care of all your marketing requirements.
Publicity and a strong online presence is the key to survival, and you can achieve it with the help of a strong public relations team.
Marketing can be powerful for your business. When done right, marketing can boost awareness, make people remember and recollect your brand and position your company to solve their pain points. However, marketing is not a magic wand that yields results with a flick of a wand.
Your marketing will yield desired results when you have a proper plan in action. So, to avoid falling into the pit of failure, hire a good marketing agency or build an excellent marketing team.
How to ensure good marketing? For effective marketing, focus on selling your products on channels where your audience is. If your target audience uses Instagram, create a marketing campaign on Instagram to connect with customers. Also, keep aside a dedicated marketing budget to help you spread the word about your products.
With 11 out of 12 businesses failing due to numerous reasons, there are many ways you can prevent yourself from falling into the failure pit.
Whether you’re a new venture or helping a friend establish their business, knowing about the most common mistakes about business failure can ensure you don’t commit the same mistakes.
From these six reasons, it’s clear what a business should do to survive the start-up landscape and drive their company towards success. It’s necessary to understand ways in which your business can thrive.