Image by: Heisenberg Media
By Alexa Hughes
Starting a business is a huge undertaking, but one that completely change your life for the better when it works out. A lot of start ups don’t end up working out however, 25% of those that fail do so within the first year, and only 37-58% of most start ups are still up and running after the fourth year.
That’s a lot of drop outs! The reasons behind the failing businesses tend to be similar though, which means if you you can plan your way around the slip-ups you’ll have a better chance of making it. Here are some common reasons that startups fail.
#1) The Idea is Too Small
A lot of ideas for startups come from the need within a niche or specific market, but not something that would connect with the masses at large. This doesn’t mean that you can’t have a successful very small business, but it does become more challenging to get investors on board when they don’t see the large scale possibilities for your business to grow and for them to get a return on their investment.
#2) Neglecting to Research the Market
If you come up with an idea and jump into business planning without researching the market, you might be dismayed to find that someone is already dominating the market with your exact same idea or that it doesn’t seem like a good time to do it all. If other startups have already gotten investors for the same idea you came up, it would be harder to get your own backers. Not to mention, the competition in general is stronger.
#3) Not Having a Proper Team
Maybe your startup is the brainchild of you and your best friends, which is great except that none of you have any startup experience. You might need to hire someone who can delegate responsibilities to you and fill in the places where you’re less informed so far.
This is also helpful when you’re trying to get investors because they not only want to know that people know what they’re doing, but that there is stability which a group provides more than an individual.
The online marketplace One Kings Lane has shared:
“No matter what tools you have — if you don’t have a passionate, strong, dedicated team — your customer service department will suffer.”
That being said, you might have to spare some of your investment money to pay that hard working team from the start to ensure that they stick around. Taking care of a loyal team will usually pay off in the long run.
#4) Overlooking the Market Strategy
When you’re raising money for your startup, you need to think beyond launching your site or having enough of your product and realize that the marketing process requires a lot of funds as well. If you get your product ready but then have no way to expose it to the people, you’re going to have a problem. Backers need to know that you’re viable.
Gene Marks, president of the Marks Group says on getting investors:
“They want to see real financial statements showing revenues from live customers that you’re turning into a future model rather than fictional plans and ideas based on assumptions.”
#5) Lack of Passion
If you see your business as a potential cash cow but could take it or leave it if it was someone else’s business idea, you might be going down a rocky path. Without true passion for your business or product you might be less motivated to take the chances that matter or to put in the extra time and effort. Expecting a business to survive without love is not the right way to go. If you don’t love what you’re doing when the going gets rough you just won’t be happy, period.
#6) Neglecting to Find a Mentor
Most people are not experts in their field when they are just starting out, and there’s no shame in seeking the advice of a mentor while you’re learning the startup ropes. Anyone who has succeeded in starting their own business did so for a reason, you might as well ask how. Learning what to do and what not to do are equally important.
#7) Not Raising Enough Money
It can feel reckless to ask for a lot of money from investors when you’re just starting out, but the truth is that a business takes a lot of money to run. You should have enough money to keep yourself afloat for a year to 18 months to give yourself ample time to try things out and hopefully make some progress. It usually doesn’t happen overnight. Having a bit of a backup is ideal in case something goes wrong, which it might. You don’t want to go under from a small misstep that could have been easily avoided had to gathered the right amount of funds to protect yourself.
Sometimes you can prepare in every way possible and something out of your control can occur that keeps your business stuck at level one and it never goes anywhere. It’s a chance you have to be willing to take. But if your project is a passion one as much as a way to make money, you might be motivated to keep at it anyway!
Do you have experience starting your own business or have plans to do so? Let us know what has worked/not worked for you, and how you’re planning to make it work if you’re in the planning stages!