Javed Khatri

Sr. Business Analyst

Software  |  Technology  |  Uncategorized

10 Reasons Why Startup Fails and Effective Methods to Side Pass


It has been a fact for years now that 95% of most startup fail within their first five years of existence. Learning why they failed will really help your startup succeed.

As a business owner, there are some common pitfalls that you must avoid that can tear your business apart. These pitfalls are what I will be sharing with you in this post. If these pitfalls can be addressed upfront, you are likely to achieve success in your business.

Here are 10 reasons why startup fails and the most effective ways you can avoid any of them from happening to your business in 2018.

1. Management and Leadership Failure

This is one of the greatest challenges startups face and it is one cost of their failures. Some great startup owners are great founders with great vision and plans for the company, but not great manager. If as a business owner you lack good management and leadership skill, then you will struggle to grow a successful business.

The importance of good management cannot be understated. Poor managers lead to the deterioration of the entire company. Businesses rely on skilled leaders to maximize productivity. Any business owner lacking the needed skills in area like finance, employee’s management, hiring, strategic thinking, ability to make a vision a reality, selling and purchasing, will find it difficult to sustain the business for a long term.

So, business owners lacking any of the skills required to run a successful business must educate themselves either by finding a mentor, enrolling in a training program or through personal study and researchers.

Another way this can be done is by examining other successful business in your niche/industry and see how you can apply a method you like in the business into yours.

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2. Failure to Deliver Real Values to Customers

Customers need value, not product purchases. A business that fails to deliver real value to its customers will surely fail. Customers are the only reason why businesses exist, and if these customers don’t get value for their money, they will gladly go and patronize your competitors.

Do you listen to your customers? Are they happy with the way you are selling your products or delivering your services? These are questions every business owner must ask themselves and give honest answers to.

If you take your attention off customers’ satisfaction and focus solely on how you can be making money from the business, it won’t take long time for your customers to notice and take their money elsewhere.

So, to sustain your business and keep it running, you must make sure you are delivering real value to your customers. If you are into car wash business, make sure your customer’s cars are clean to their satisfaction.

Whatever business you are operating, make sure your customers are happy spending their money with you. Conduct a survey on your customers and find out what their interest are and stay informed. This is one way to prevent your business from collapsing in 2018.

3. Inability to Manage their Finance

Many times business owners get cut up with so many activities in the business that they fail to keep track of every penny spent in the business.

Failure happens in a company when the business owner or accountant fails to keep a good accounting record of the business. You can’t be in control of your company when you don’t know the in and out movement of money in your company.

At times, when business owners start making money from their business, they start flying first class to business conventions, workshops, and seminars. They want to lodge in 5-star hotels and enjoy first class treatment. They fail to realize that the business still has a long way to go.

They end up spending money on unnecessary things that they should have saved, and later find out that they are out of cash. Controlling expenses is one of the best ways to keep any business in good position so it continues to perform well irrespective of bad economic times.

4. Lack of Competitive Advantage

When you can’t tell why customers should choose you over your competitors, you will surely struggle to win customers over. A startup fails to exist when they fail to develop a competitive advantage over their competitors in the marketplace.

Every startup that is in business to make profit, must have a competitive advantage. It is the key to sales, high profitability and success in any startup. The only problem with startup is that because they are new and don’t have the budget to compete on a larger scale, they start using price as their competitive power.

This is not a good strategy at all. If you use price as your competitive advantage, it won’t take long for another new startup to come and kick you out of the market with a lower price than you are offering.

To survive in the marketplace, every product and services you are offering to your customers must have a clear, distinct competitive advantage over its competitors.

Your competitive advantage maybe that you provide 24/7 service unlike your competitors. A 30-day money back guarantee on product or service purchase can also be your competitive advantage if your competitors are not doing it.

5. Wrong Location

A good business in a bad location will eventually fail. Most startup entrepreneurs feel that location doesn’t matter in a particular business as far as other businesses are striving in that particular location.

Not because other businesses are striving in a location means you should go and site your business there. You should check the type of business that are doing well before you go and site your business there.

A truly profitable location will surely help your business make more money and appreciate in value. Any location that does the opposite is a bad for your business.

When your business is cited in a poor location, you will end up pouring more money just to sustain the business. Your location, no matter what business you run, plays a big part of your business success. Location can either break your startup or make it grow.

When choosing a location for your business, first look out for your target customers and what you will be offering to them. Are your target customers in that location? Are they car owners? If yes, do you have enough car parking space for them?

These are factors you should put into consideration when choosing a location for your startup so as to avoid kicking yourself out of business.

6. Lack of Passion for the Business

This is probably one of the biggest reason why most startups fail. When profit making is the only motive for starting a business, such business will not last. This is because, at the beginning of your startup, you are going to be working 18 hours a day, 7 days a week, just to make sure the business become a success.

If it is something that you are not passionate about, you are going to lose interest along the way and the business will end up dying even before it experiences it first victory.

It is very easy to see entrepreneurs these days start a business just because they want to start making money from it and not because it is something they are passionate about. If you don’t have passion for your business, it will always be difficult to sustain that business when troubles arise.

Start a business because you are passionate about solving a particular problem and not because you are passionate about making money from it.

7. Not Working with a Team

Success in any business starts with the right people. Some startup entrepreneurs think that they can run their business alone and experience the same success big companies are experiencing. They get so trapped working in their business that they think working with a team is a waste of time and money.

Any business owner who want to experience success in his or her business must work with a team. You must have heard of the statement, ‘teamwork makes the dream work’.

Working with a team gives you the time to focus more on the important things that will keep the business growing, while your team focus on the day to day operation of the business.

When it comes to finding the right team, even top companies like Google still find it difficult when selecting team members. So, it is very important that you take the selection process very serious when picking your team members because having the wrong team members in your business can create negative results in your business.

8. Overexpansion

Many startups have crashed due to overexpansion. They expand too quickly without careful analysis and planning. This is caused when a business owner confuse success with growth. The business owner gets so excited with the results he is getting from the business that he feels it is time to open another branch and start expanding the business.

Don’t let expansion be your mission. Let your business tell you if to expand or not. There are indications that should tell you that it is time for expansion. Indications include; not able to meet customer’s demands in time with the available workforce, employees not able to keep up with production demands etc.

If expansion is necessary, make sure you and your team/management have sat down to conduct a thorough research and analysis to make sure the timing is right and the funds are available. Make sure the initial business is going on smoothly before opening another location or expanding your workforce.

9. Lack of Planning

You must have seen this happen multiple times. An entrepreneur, so passionate about his idea suddenly goes out, register his business and before you know it, he already has rented a store and have started ordering products that he will start selling.

No business plan, no market research, no marketing plan, nothing. How will such business succeed? Planning is required if you want to have the most possible success in your business. A business plan has a lasting value.

It is absolutely wrong to think that not all business requires a business plan. The absent of a plan in a business can lead to unexpected failure. To avoid this, it is imperative that every entrepreneur about starting a business draw up a business plan.

A business plan is a framework with which your business must operate within. If you will be needing money in the future to support the business, your business plan is what you will need to get funds from any financial institutions.

Look at any businesses that are successful today, they all have a business plan. Your business plan must be well written to contain—your vision, mission, executive summary, operational expenses, marketing plan and budget, expected income etc.

If writing a business plan is something that you have no idea about, you can seek the service of a professional business consultant or make use of any available business plan Software for a small fee.

10. Insufficient Funds

Nothing kills a startup faster than running out of cash. A large percentage of business startup fail due to cash flow problems. New business owners due to their lack of business experience underestimate the important of raising funds for their business.

Some don’t even know how much they will need to keep their business in operation. It is very important to know the amount of money you will need for your business to keep running so you don’t end up looking for fund when you are supposed to be focusing on other better things in the business.

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There are more than 10 reasons why startup fails but these ones are by far the largest of all. You can save your startup from failure if only you can avoid these pitfalls explained above. Get in touch with us.

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