3 Key Reasons Startups Fail
The challenges of starting and running a new business are numerous. Solopreneurs become entrepreneurs while seemingly working 24 hours a day to perfect their product and drive sales. Unfortunately, a large number fail each year. There are many reasons for this, but the three primary ones are: (1) Not enough demand for the product being offered, (2) running out of money, and (3) dysfunctional management.
Not enough demand – from concept to launch there is tremendous pressure to get to market as soon as possible since you are burning through your seed capital without offsetting sales. Many solopreneurs have a very clear concept of their product and spend hours perfecting it and creating a marketing campaign extolling the virtues of their product and how that will help anyone purchasing it. The one thing that is missing is what does the customer actually want? Early on market testing is essential. This can be done by asking prospective customers what is most important to them or having a feedback loop on your website. Too many founders end up building a solution that doesn’t have a problem.
Running out of money – this is somewhat obvious but many founders have not developed a budget including a cash flow budget. This not as exciting as product development, but creating a cash flow budget gives founders a picture of how long their seed money will last and how best to spend it. Accurately recording expenses in a system is also key…having a bunch of receipts on your desk and an infrequently updated spreadsheet will result in a problem.
Dysfunctional management – A transition from solopreneur to entrepreneur can be challenging. Hiring and then managing people in a startup environment is very different that at a larger company. In the startup world, each hire and team member is absolutely critical to success. Not only if finding employees (given budget constraints) difficult, but integrating the different personalities is a significant art form. Many founders are heavily focused on what they are doing and don’t give their staff enough responsibility and autonomy. This can lead to frustration and high turnover. Anther factor not frequently discussed is the blending of personalities (the subject of a future blog). Different people see the world in unique ways and are best communicated with in different ways. Discussing financial matters with the CFO vs. sales and marketing with the head of New Business are very different. While founders don’t need to be HR experts, recognising these different personality traits makes life much easier. A further benefit…your customers also have differing personalities. Failure to effectively manage your team results in higher turnover and less productivity.
These are three of the main reasons for startups may fail…..but there are more. I welcome your thoughts in the comment section below.