The 14 Top Reasons Why Startups Fail And How To Avoid Them

The 14 Top Reasons Why Startups Fail And How To Avoid Them

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So many efforts, dreams, and money invested, and your company fails. It is an experience that you learn from, but that is a simple comfort since what you would like is to have gotten ahead.

If you have founded a startup or are about to launch it, I think that an objective review of this list can help you not to make different mistakes.

Startup

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1. Lack of Financing

“No cash, no business.” Before launching, you need to make a forecast of the treasury as pessimistic as you can. You have to count on your resources and the 3 “f”: friends, family, and fools. If you do not get financing from your environment, it isn’t very easy to go to a capital round of people who do not know you.

Once you see clearly that your startup can look for external capital, keep in mind that the financing rounds can last between 6 and 12 months from when you start until you have entered the money into the account (those who manage to close the round, around 10% of startups).

2. Lack of a Proposal for Sustainable and Unique Value

Many startups fail because they don’t launch suitable products on the market. Many entrepreneurs fall in love with their product or service and do not analyze well if the product has a market. In many cases, they do not make their initial idea more flexible and do not listen to the potential client.

You have to make products and services for which your customers are willing to pay for them. And it has to be a product or service that represents a good value proposition that is easily scalable.

Many of these companies shut down because they may have a great product that customers do not need or are out of market value.

3. Lack of Customers

Once you have a proposal of sustainable and unique value, your startup may disappear because it does not have an inexistent or improvised commercial strategy. I’ve seen so many startups that have disappeared due to a lack of industrial capacity!

4. Lack of Persistence

Many times entrepreneurs are too optimistic and start venturing without knowing how hard it is. Very unrealistic objectives are marked in the short term, and as in 99% of cases, they are not achieved, they become disillusioned.

Not everyone serves to undertake; you have to have a lot of persistence, tenacity, and, even, a capacity for sacrifice, discipline, and the search for constant improvement. And primarily if a family depends on you, having enough resources to survive without the need for benefits in your startup.

The emotional management of an entrepreneur is essential. Know how to manage the fear of not achieving the objectives, efficient time management so that the entrepreneur does not feel that he is all the time dedicated only to his project and especially stress management. With the efficient management of these emotions, it would be very likely that there were so many failures.

5. Bad Management

Bad Management

There are many entrepreneurs who launch into the business world with a lack of minimum knowledge of management and business strategy.

You have to keep in mind that to launch into entrepreneurship, you have to have at least general knowledge of finance, marketing, processes. Its primary function will focus as CEO on defining company strategy, choosing a good team that helps you, and achieve the financial resources necessary to carry out your project.

6. Inappropriate Equipment

A good team is essential for a startup to succeed. But sometimes big mistakes are made like hiring too much equipment. I always say that you have to hire slowly and fire quickly (those people who don’t work).

Keep in mind that to capture and incorporate talent, it is not possible to do it based on large salaries, since you can never compete with large companies. You will have to think about other advantages (for example, flexibility, stock options, etc.) to attract true talents.

Also, the project leader must have the ability to lead that team of talents and, at the same time, be guided and open to the advice of his team.

The only way for your startup to succeed is for your management team to be committed if not, change it.

7. Too Much Competition and Stronger Than You

Original ideas, there are very few. Sometimes we do not launch to the market with what we think is a great idea without having studied enough, who is doing the same in the market. It is necessary to spend many months studying what exists in the world about that product or that service. Once thoroughly researched, analyze what we can contribute differently to do better than the competition.

If we do not do this analysis, our startup is likely to shut down because there is already too much competition and stronger than us.

8. Absence of a Correct “Time to Market”

I have seen great ideas in startups that have disappeared due to reaching the market in an inappropriate time.

That is, for executing the idea too soon or too late.

9. Lack of Focus

Lack of Focus

This point sometimes collides with point 3. That is, the need to earn income makes us shoot everything that moves. This disperses resources, depletes, and is inefficient. Therefore we have to devote ourselves to being the best in one thing.

10. Unrealistic Business Plans

I have not seen a single business plan for a startup that is met. Although we make very pessimistic BPs, or what we usually call realistic, they are never fulfilled. There are always more expenses than expected and less revenue than expected. This excess of optimism exhausts the entrepreneur and can lead to throwing in the darkness.

11. Bad Scalability

Not all startup projects can scale. You can create a profitable company that only serves a specific market. This may be a good business project, but it probably will not be invested by venture capital funds. Do not insist on climbing because it can be the end of your company.

12. Inappropriate Partners

The company’s partners must have similar values, complementary knowledge, and the same objective. If these circumstances do not come together, it is possible that many frictions cause the failure of the startup.

13. Lack of Sufficient Knowledge of the Sector Where it is Undertaken.

Sometimes I am a business angel, and I invest in some projects that I like. As there are many projects to invest in, I previously only choose as invertible the projects in which the entrepreneur who assembles them has great experience in a sector and has demonstrated success in that sector. That is, I usually invest in people who are already close to their forties with more than 15 years of experience in a specific sector.

It is difficult enough to carry out a startup to not know in depth the sector where you get.

14. Regulatory Barriers and Bureaucratic Obstacles

For me, this factor would be the least important because if the business is going well, you end up surviving all the bureaucratic regulations and procedures. Fiscal pressure is terrible from moment zero. Still, the worst is when something uncontrollable happens, such as the publication of a law, which affects your business so negatively, that it makes it unfeasible.

Think, is your product or service at risk of being regulated? Is your legislation clear? Are you being regulated in other countries or Europe? Are occupational hazards controlled?

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