Top 10 Reasons Why Business or Start-Up Fails
- Sarthak Niwate
- May 16, 2020
- 5 min read
The identity start-up refers to a business/company in the initial steps of operations and development. Start-ups are majorly founded by one or more entrepreneurs who want to develop a service for which they believe there is a demand. These business generally start with higher costs and limited turnover or revenue that's why they look for capital from sources such as venture capitalists.
According to Small Business Administration research, only few or some new start-ups survive for the initial period of five years and only one-third of new start-ups are capable to survive with fights for 10 years. The inverse is compelling as we can conclude that if only 50% of new businesses survive for the first five years, then the other 50% fail in the first five years. We can also conclude that about 65% of new businesses don’t make it to the ten-year mark.
Forbes reports an even more grim statistic, based on Bloomberg research, that of every 10 start-ups, eight fail within the first 18 months. What are the reasons businesses fail to thrive, given a 50/50 chance of survival and assuming a service for which there’s a demand? Here are some reasons why start-ups or businesses fail in initial stages only:
1. LEADERSHIP FAILURE
Wild-eye entrepreneurs never fails in delivering best leadership qualities to their work. Leadership is the key point of any business and it is the foundation of any community. Perhaps the leadership team is not in agreement on how the business should be run. When problems requiring strong leadership occur, leader may be reluctant to take charge and resolve the issues while business continues to slip toward failure.
2. LACK OF UNIQUENESS AND CLEAR OBJECTIVE
The start-up / business may have excellent product or service for which there is strong demand, but the organization is still getting series of failures. It may be that the approach is mediocre or it lack a strong value proposition. If there’s strong demand, business probably have to face many competitors and its difficult to stand out in the crowd.
Find a path that can be under-promise but over-deliver. Always over-deliver. No matter what the situation. If business is looking to get rich quick, it'll quickly find itself at a dead end. Instead, focus on the real value proposition. And business need to rethink its approach.
3. UNSATISFIED CUSTOMER EXPERIENCE
If business can't find which is the target customer community, business will fail. What do they want? Not just what they need. But who are they and what do they really want? Is it to invoke a certain emotion? To attain a certain status? How is your product or service going to help them solve their problems?
Customers may like product or service but, may be they love it if you changed some feature or altered that procedure. What are customer trying to tell you? Have you been listening to them? Or is the market declining? Discover who they are right down to the most minute detail. That's one way you'll avoid business failure.
4. POOR EFFECTIVE SALES MANAGEMENT AND SOCIAL PRESENCE
Weak sales management is one of the major causes of business failure. Managers have to work extremely hard, and to understand their customers needs, and the business that they are in if they are to be successful. At the very least, every business should have a professional looking and well-designed website that enables users to easily find out about their business and how to avail themselves of their products and services
Every growing business needs to have social media profiles on the services that are most likely to use by the target customers. If they don't, business won't look professional and will lose business to competitors who do at least have profiles on popular social media sites.
5. LESS TRANSPARENCY AND AUTHENTICITY
Due to these 2 reasons, maybe not today or tomorrow, but one day soon. Without the customer's needs in sight and an aim on the fuzzy things, start-ups could easily lose the target consumer's trust. Rather than risk that from happening, focus on being authentic, transparent, and finding ways that you can give more rather than take.
6. FAILURE TO BUILD EMPLOYEE COMMUNITY
Any organization should build the employee tribe and culture is crucial for long-term success. Most businesses will fail because they forget about their employee community. When it becomes an us-versus-them scenario between executives and employees, a downward spiral begins to occur. That spiral might not happen overnight.
Often a cause of failure. Successful businesses motivate their employees to work hard to help the business to succeed.
7. IMPROPER BUSINESS MODEL
Akin to leadership failure is building a company on a business model that is not sound, operating without a business plan, and pursuing a business for which there is no proven revenue stream. The business idea may be good but failure may come in the implementation of the idea if there are no strategic guidelines in place.
Without a good deal of systems and automation, the amount of work becomes overwhelming and the details can easily be overlooked.
8. LACK OF FINANCIAL MANAGEMENT
It's easy to spend when the coffers are full. But having an acute sense to control the company's expenses is imperative. Much of this comes back to the founder's personal money habits. Are they millionaire habits?
Entrepreneur must know, down to the last dime, where the money in business is coming from and where it’s going in order for business to succeed. Business can also fail if it lack a contingency funding plan, a reserve of money can call upon in the event of a financial crisis. Sometimes people start businesses with a dream of making money but don’t have the skill or interest to manage cash flow, taxes, expenses, and other financial issues. Poor accounting practice puts a business on a path straight to failure.
9. THERE’S NO MARKET OR TOO SMALL OF A MARKET
The best business ideas will fail if there isn’t a market for what you sell, or if the market suddenly disappears because of economic changes or natural disasters. While you can’t predict disasters, before you start a business you need to determine if there’s a market for what you plan to sell and if that market is big enough to be profitable. Keep in mind, that “everyone” isn’t a market. The market must be an identifiable group of customers you will be able to reach with the marketing dollars and resources you will have available.
10. RAPID GROWTH AND OVER-EXPANSION
A leading cause of business failure, over-expansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies.
If expansion is warranted after careful review, research and analysis, identify what and who you need to add in order for your business to grow. Then with the right systems and people in place, you can focus on the growth of your business, not on doing everything in it yourself.
CONCLUSION:
When it comes to the success of any new business, you as the business owner is/are ultimately the "secret" to business success. For many successful business owners, failure was never an option. Armed with drive, determination, and a positive mindset, these individuals view any setback as only an opportunity to learn and grow. Most self-made millionaires possess average intelligence. What sets them apart is their openness to new knowledge and their willingness to learn whatever it takes to succeed.
- Sarthak Niwate
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