When a single person, tries to create a startup, there are usually a lot of downs associated with it, therefore there are only a few available startups that were initiated by one person and are now operating successfully , even so along the way, they had to find a co-founder to help to alleviate some pressure. A typical example is Amazon, ebay and a few others.
So, startups can simply mean, a young business that has been established by a person, or two or more people to provide an irreplaceably distinct products and services. startups work and run by soliciting capitals from private equity investors, normally called venture capitalists.
Also, most get their fundings from families and friends. It is common for startups to face challenges from hiring of workers, tough competitors to financial management and even market availability. All these play a critical role to influence if a startup would be successful at all.
According to recent studies, 20% of new businesses fail within the first two years, going through to the fifth year, 45% fail, by the end of 15 years, a whole 75% go out of business which is quiet concerning.
Therefore in this blog post today, we will highlight some key points why most startups fail, the mistakes they make, and also at the end, provide some ways you can avert this calamity.
In This Article
Reasons Why Startups Fail
For a startup to fail, there must be several reasons as to why it happened. It actually is a problem, considering most of the equity in these businesses are from outside investments and fundings and so when they fail like that, the founders have a lot of emotional and mental phases to go through.
Below are some reason why a startup can fail and if you are considering starting your own, make sure to avoid them.
A Poor Business Plan
For most startups this point is key, a business plan is like the overall illustration of your business. It is like the soul of the business, as without it, you would have no reason or purpose to run the business. Simply put, they are what make your business functional.
A business plan or model is a document that tells people your goals and the strategies you intend to apply to get them. It must entail where you want to get to from the stage you are with the business. A normal business plan contain things such as the executive summary, marketing plan, management and organization and a whole lot.
In making a business plan, most startups that fail are mostly guilty of this point, as they provide a business plan that fails to clearly put their vision out there. They fail to provide a clear vision of what they intend to do with with the business. Thereby rendering the plan impractical and difficult to implement.
Failure to provide a clear business plan leaves the business to prioritize things that are of no relevance to the welfare of the business. By the time the founders, employees, and managers realise, they would be closing the business they thought they were running.
My dear reader, if you are planning on creating your own startup, make sure to have a business plan that explicitly states your goals and aspirations. In fact investors feel assured and secure to invest in your business when they see how explicit, straightforward and clear your business plan is.
They get to know and understand with a clear conviction that, they will be able to make beautiful returns from investing in you and your business. Below are some ways to make a strong and convincing business plan.
Making An Effective Business Plan
There are many points to consider when making a business plan effective, however do consider the following
- Make your vision as clear and explicit as possible
- When you make your business plan, consider factors such as your competitors and market availability
- Make it flexible
- Research extensively on the product or service you want to provide
- Make your budget as detailed as possible
- Clearly define your value proposition.
Failure To Acknowledge Competitors
There are a lot of competition with startups, and they are good things too, but with a downside to it. When there are competitions in the startup pool, it pushes you and your team to work harder to be better than the others.
Also you are able to meet new people and learn from their experiences, and also it helps you know when to make certain calculative moves on the market to derive some advantages. But know that as you seek to rake in some benefits, the same goes for your competitors. Competition in general can directly contribute to a startup failure. How?
New business founders always keep their eyes on the market to see when there are new trends and how to keep up with them if not, their businesses will be ran over by their always innovative competitors.
Due to that, they are always ready to do anything and by any means to make sure they stay in competition.
Competition is not a bad thing in the Startup world, but when you focus on it too much, you would end up wasting your capital and funds because you thought you were trying to keep up with competition but not realising you are wasting your capital and funds to do something that was not a business objective. Therefore your startup would be in a decline even before you know it.
Hiring The Wrong People
Another mistake startups make is failing to hire the right people. A business in general is not only about products products products, but also, it is about handling people, communicating and other things.
Therefore when you decide to hire people as a startup, focus on talent and experience acquisition because when you allow just about anybody into your startup business, then you should probably try shooting yourself in the foot, because it would mean you have no regard for the quality of your staff.
Doing things like that reflects when your startup fails and you would be trying to understand what happened disregarding the fact that you initially failed to check the credibility of your staff. Choose credible people and reap benefits.
When it comes to the credibility of a business, its staff or members play a critical role in it. Let’s take instagram for example; at a point in time, it was run by only 13 people when it was bought by facebook on April 9 2012 for a whopping 1 billion us Dollars. Take note, 13 people, that must mean that they were an extremely efficient bunch.
Their staff was credible and effective, if facebook had not bought Instagram, they would have pretty much scaled up and increased the worth of the company, or not.
Either ways, most startups that fail do so because of inexperienced and non talented employees. If you have it in your mind to create your own startup, make sure to put in mind that hiring the right people is key.
Below are qualities you must look for in a person before you hire them for your startup
Qualities To Lookout For Before You Hire
- Make sure they have the right skill set you desire
- Make sure they share in your passion
- Make sure they have the kind of personally you need
- Make sure they see your vision as well
- Make sure they are open to learning new things
- They must be ready to compromise
- They must be ready to sacrifice too, very important
- Make sure you can trust them too.
As for where you can find these people, it is quiet simple, do so with the network you have, ask friends and family, your school alumni group is a good place start. And attend seminars too, that is where you can find the right people.
Failure To Acknowledge Change
One mistake most startups make is, they fail to accept change, it is true that change can be scary sometimes but, if there is anything real and true of the market, it is its ability to change.
The market can change any how and any way, so as a startup, you must try to keep your eyes down for any change that goes on whether major or minor in order to keep up with market trends. In doing so, don’t forget to focus on the main objective of the business.
In order to achieve that goal, you must apply all kinds of strategy available to use, so that you can stay ahead of your competitors and avoid the decline of your startup.
There is one study conducted by harvard business school that found that, about 75% of most startups goes through a huge change at least once in their journey.
In order to keep up to date with how the market changes, you can apply these methods
How You Can Keep Up With Market Trends
- Consider your customer needs and adapt to it, you can do this by soliciting for customer feedback.
- Keep an eye on your competitors
- Make use of data
- Pay heed to you advisors
- Be down to take surveys of the market regularly
- Be ready to do the unexpected.
Mismanagement Of Funds
One mistake that kills most startups, is mismanagement of funds. Funds are the backbones of startups, considering the hassle founders will have to go through in order to secure potential investors and funds to run the business.
When the founders and key members of the organization use the business’s funds inappropriately without proper accounting, we can call it mismanagement of funds, this leads to decrease in equity and capital of the business, thereby reducing the financial stability of the business.
With time, the decline of the startup becomes imminent. When funds are mismanaged, it mostly happens that, the business has no real goal or has lost their purpose to be in business.
Also it can happen that the equity and capital of the business is left intact, but the founder and the key members focus on the revenues the business has generated, it would have been the best choice to reinvest the money into the business but because they must have lost their purpose, they misappropriate the profits generated causing the startup to fail.
Focusing On Too Many Things At Once
It is sometimes very typical of startups that fail to focus on too many things at once. It maybe due to the excitement and or passion of being a new founder. He or she may want to experiment with everything and anything they come across on the market.
Due to that, their main focus as a business is forgotten and the things that do not matter or have anything to do with the business takes priority over the business. When investors see things like these, they lose interest in the business, when that happens, it means the business has lost a funder which makes the startup vulnerable to decline.
Failure To Acknowledge Market Needs
When there is no market, it means there is no business. Most startups find a problem or a need and address them alright but the problem is, they fail to analyze if the need they want to address has a market at all.
Normally, before a business can operate, it has to have a reason to operate, and to do that, they would have to conduct research upon research in order to make sure there is actually a need for the product or service they intend to provide so that they can prevent any form of disappointment after realising there was actually no market out there to appreciate their passion.
It is quiet normal because most of these founders are driven by passion, they are proud of their product, and want to put it out there for people to witness and see. Most of these founders even forget the need to invest in finding a market for their service or product but for the product, they can go any length to make sure it is perfect. Meanwhiles they would have no idea if there is a market for it or not.
Ways To Prevent Your Startup From Failing
After knowing the mistakes that cause startups to fail, it is best that you understand things you can do to prevent your own from failing.
- Make sure there is a market for your product
- Have a clear goal of what you intend to achieve as a business
- Make sure to build discipline, it will go along way to help you to achieve success.
- Make sure to have the best and competent team
- As a startup, you must be sensitive and adaptive to change
- You must be ready to manage risks.
Startups play a vital role in the economy of a country. Hence it is very important to be ready to start your own as soon as possible, if only you have the heart and passion for it. And if you do, make sure it does not fail.
