Tuesday, January 31, 2017

8 Reasons Why Startups Fail

Nobody gets into business expecting to fail, yet a fair number of entrepreneurs will fall by the wayside. A 2016 report by Small Business Administration revealed that about half of all startups survive at least 5 years, and a third survive 10 years or more. This is in contrast to previous beliefs that 50% of startups fail in the first year, while 95% fail within 5 years.
The reality is a significant number of businesses do fail, and it’s not uncommon to see founders, investors, and CEOs blaming each other for the failure.                                                                                                 Here are reasons why startups fail, and tips to keep yours afloat.
  1. The management team
Achieving success will be an uphill task if you venture solo. It's important to bring onboard individuals with diverse skills, whom you can trust enough to give control over their responsibility areas. Weak management teams are poor at market execution and will build weak teams below them. When ideas change or the market is disrupted, your investors and incubators will need a team of smart people they can trust to steady the ship. One of your main roles as founder, is to attract, and retain innovative people who understand your industry, and can scale up your company.
  1. No market
A survey of business owners by CB Insights found that 42% of them failed because instead of full filling a market need, they focused on creating a solution for a non-existent problem. Your product needs to solve a problem, by having a value proposition for a specific customer segment. Do a SWOT analysis or conduct a survey of your potential market before venturing in.
  1. Lack of capital
Don’t underestimate the amount of cash you’ll need to cater for expenses and overheads. Your startup must raise enough “seed capital” to begin and keep your business afloat.Perform a break-even analysis to predict when sales will begin to sustain the business. It may take a year or two before you can break-even.
Create a budget and have sufficient reserves for future developments in case the initial product fails. Maintain a good relationship with your lenders and suppliers -- they may come in handy when you need short-term credit or quick cash.
  1. Location of your business
A good location can enable a struggling startup to survive and thrive, whereas a bad location can make a well-managed enterprise to fail miserably.  A location that’s visible from major roads and intersections will give your retail business or restaurant a competitive advantage by maximizing storefront exposure. The easier it is to locate and access your business, the more walk-ins you will generate.
  1. Not recognizing the competition
What can you do differently, and how well enough can you do it to win the market? Failing to research your competition is planning to fail. Study your competition by visiting their website, follow their social media pages, use their products, and shop anonymously at their stores.
  1. Timing your launch
Launching your startup too early may find you and your team lacking skills to handle your company’s growth. Rushing research and development might also lead to substandard products. On the other hand waiting for too long is not desirable. The best way to launch a product is to set a deadline.
  1. Inability to maintain growth
As your business gathers momentum, you may decide to scale up operations only to realize your business model cannot sustain growth. Allocate your resources wisely by planning when, and the number of people to hire. Be flexible in the event your startup demands you change your model sooner than expected.
  1. Product quality and pricing
Your first product may not meet the market need on first attempt. In some cases, it may only need a few tweaks to achieve the product fit. Extreme cases may require a complete re-think taking you back to the drawing board. Once you have achieved your product fit, determine the ideal price that will gain you sufficient profit, and customers value for their money.
Building an interesting website, product or service will not guarantee you customers if your business model is weak.  Should your startup fail, do a post-mortem of what went wrong, learn from your mistakes, and live to fight another day.

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