The Top 5 Reasons Startups Fail and How to Avoid Them

by | Sep 4, 2020 | 0 comments

Each year thousands of startups are launched and approximately 80-90% of them fail in the first year of operation. Why do so many fail? It’s certainly not do to lack of effort, but there are certain issues that over and over again are reasons why startups fail. These issues can easily be remedied with properly planning, research, and business mentoring. Does your business have any of these problems?

CASH FLOW (or lack of)

One of the main reasons startups fail is do to money/funding. Every startup should have at least 2-3x operating capital or have access to funding BEFORE starting the business. This includes all fixed and variable expenses (including salaries).  For example, if you forecast revenue of $50k for the first year of operation and expenses are budgeted for $75k there should be from $150-225k in funding at the ready. Only in this way can a new venture weather the storm of lower than anticipated revenue and higher than forecasted expenses that always arise.

LACK OF DEMAND

So unique/specialized is the product or service that the market is too small to sustain a thriving business. A lot of market research needs to go into making sure the product has a demand that drive sales. Many times proper market research is poorly conceived or lacking as the founders get caught-up in the excitement of their idea.

STAFFING

Improper staffing can be a killer no matter where the company is in its life cycle. Moreover, great care must be taken in hiring the right people, developing them, supporting them, listening to them, and incenting them.

NO UNIQUE SELLING PROPOSITION

The business has NO DIFFERENTIATION. No uniqueness. For example, every time I attend a networking event, at least half the attendees will be Search Engine Optimisers or Website Developers/Enhancers. Many, sometimes all, have no aspects of their business that are unique. Nothing that differentiates or sets any of them apart. To succeed, a business must have a Unique Selling Proposition and be targeting the right market. 

POOR MANAGEMENT

Once the business is launched, the entrepreneur needs to morph from founder to manager/leader. These are very different roles and many times the transition doesn’t occur. Putting the right people in the right positions is crucial for success — particularly in the early life of a business.

SUMMARY

  1. Ensure the business is properly funded and don’t launch until you do.
  2. Delve deep into demographic research and ensure there is market demand for your product/service.
  3. Staff properly and diligently.
  4. Find your USP
  5. Become a Manager/Leader

Following these tenets will greatly reduce a start-up’s risk of failure. 


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By Jim Lavorato

Jim Lavorato is the founder of 4M Performance which is designed to assist businesses to survive and thrive in these uncertain times. Jim launched an entertainment-related company in 1988. He was at the forefront in cinema technology and helped spearhead the movie industry's transition to digital presentation and distribution. He also co-founded the Arboreal Group, an environmental consultancy. He has published articles on the motion picture and media industries and is a contributing editor for ScreenTrade magazine and writes a blog "Cinema Mucho Gusto". He is a certified SCORE Mentor in the SCORE Greater Phoenix Chapter and lives in Scottsdale, AZ. Learn more about Jim in his "About" page.

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