Nine out of 10 startups fail. Starting a business is stressful and the owner/CEO needs to keep it together, even when things are falling apart. Read below and find out the six most common reasons for the staggering 90% of failed startups.
1. Show me the money
When you start your business you need to ensure you have money for both the basic infrastructure, such as the required equipment, and also for the everyday operations. It is not enough if you have 90% of your forecasted expenses. You need to have all 100% of it.
Another common mistake related to money is the heavy reliance on loans. When you are in debt, you need your business to get to the Break-Even Point as soon as possible. Otherwise you will have to keep borrowing money from banks or friends and family and this may lead to a disaster.
Sometimes, being very optimistic is not a good idea; you should rather be realistic. If your product/service is not completed yet, then there is no point in hiring salespeople. You can do this once these people have something to sell. Otherwise you will only end up wasting money for nothing.
2. Lack of a business plan
Your business needs thorough planning and hundreds of hours of unpaid work from your side. As Benjamin Franklin said, ‘If you fail to plan, you plan to fail’ which means that if you don’t have a solid plan, then the road to failure is much closer than the road to success. You need to have plans and contingency plans for every bit and piece. You need to foresee things that may not even happen. Most of all, you need to know exactly what is your product/service, how you differ from your competitors and how you will achieve your goals.
If you are sure that creating your own business is what you really want to do, you need to work out every detail about it, such as operational work, employees, logistics, advertising, and funding.
Having the desire to start your own business does not necessarily mean you are capable of doing it. You may be the best at your trade, but you may not have the skills or knowledge required for business. If you have no idea about account management, marketing, human resources or any other aspect of a business, you may need help and you should consider having a partner or ask for professional help in order to become competitive.
3. Lack of interest in the product/service
Are you sure there is a market need for your product or service? If nobody wants your product, how is your company going to succeed? No, you will not convince them they need your product if they do not.
Even if there is the market need, are you sure that your product/service is actually delivered as it should and there are no bugs or glitches? Would you use it as a customer? Does it need any revisions? It’s not a bad thing if it needs to be revised! It just gets customized to serve the customers’ need.
In today’s economy, when most households try to save money, you need to consider that the market timing may not be right. People may not be ready for your idea or they may be not ready to pay the price you have set. Your product/service should not be priced too low or too high but it should be adapted according to its cost.
4. Unrealistic client acquisition plan
You need a solid plan that will bring you clients. Most of all, you need an acquisition plan that will cost less than the foreseen income by your potential new clients. You do not and should not want to pay XYZ amount of money for marketing and advertising and realize that the monetization of your newly acquired clients is XYZ - 30%. Your cost of acquisition should be remarkably less.
The cost of your client acquisition plan should be recovered within 12 months in order to keep a healthy business. Knowing your target market and knowing how to increase awareness, get their attention, create interest and convince them to buy your product/service is one of the most significant skills of a successful business. Not just because you will increase your leads but because you will also find ways to be prepared and ultimately beat the competition.
5. Lack of the right team
Are you great at sales but not at technical problem solving? Are you an inspiring manager who maximizes the potential of your team but you are terrible at marketing? That’s fine! You do not need to be great at everything – and chances are nobody ever is great at everything. We all specialize in certain areas. And that’s why we need and we should love diverse teams with different skillsets. We all need professionals in order to fill in our knowledge gaps.
The challenge is not over once you recruit the core team. The biggest part of the challenge comes within a few months, when you realize you may not be able to assess the team’s work performance or you cannot identify what is going wrong or right.
6. Thoughtless expansion
If you have some good sales or deals, you may think that your business will always go that well and that you should expand to a new office, move to a different location, or buy the latest computer. No. You should NOT! You should be able to fund the expansion and ensure that you have a strategic change management process in place so your staff adapt easily without affecting the productivity.
If you want to hire more people, consider whether you can make sure they will have something to do over the course of at least the next 12 months as well as whether you can pay them. If you cannot afford their salaries, why be hasty? Now it is the time to be as modest as possible so you are prepared for every situation.