There is an alarming number of statistics surrounding the failure of startups. The Wall Street Journal reports that as many as 3 out of 4 startups fail per year. These startups are actually backed by venture capitalists. Imagine the number of startups that fail without proper capital and funding.
Why would a well-funded startup company fail? There are dozens of reasons. Well-funded or not, failing startups have a number of things in common. Knowing what these reasons are can help you make adjustments in your business, so that you and your startup can become successful.
No One Wants Their Products.
Fortune asked the owners of failed startups why they thought their businesses failed. The number one reason was they were selling products no one wanted to buy.
This makes perfect sense. You can’t make people buy products they’re not interested in. It doesn’t matter how much of a spin you put on it; if the customer finds it useless they aren’t going to spend money on it. Even though Steve Jobs is famously quoted as saying, “People don’t know what they want until you show it to them,” that is not always the case.
Startup owners often see companies like Apple and Uber and think “If they can do it, so can I.” So they’ll go through with their product even if there is absolutely no market for it.
But Apple and Uber are exceptions to the rule. For every company that succeeds in convincing people to buy a new or novel product, there are thousands that have failed. If you have convinced yourself that your product is just the most amazing thing ever, and once people see it they’re going to love it, you may be heading for a rude awakening.
Not Enough Money.
Although the statistics presented by The Wall Street Journal show that even well-funded startups can fail, the fact is most startups fail because they don’t have enough money. They may start out well-funded, but mismanaged funds can quickly lead them to failure.
How do these mismanaged funds disappear so fast? The main reason is because business owners either don’t have a financial plan, or don’t stick to the one they have. This is one of the quickest ways to lose your startup.
Overpaying people is another reason. We’re not advocating being cheap, but be reasonable about the amount of money you spend on salaries or independent contractors. You may want the best, but if you’re on a budget, you probably can’t afford the best. You can still find someone with impressive credentials who is willing to work within a salary you can afford.
One thing that is often overlooked by startup business owners is the need to check and re-check their finances. Don’t assume your finances are fine just because you have a plan and you’re sticking to it. Monitor your finances, frequently and heavily. Check on them at least one to two times a week. It will help you develop a good habit that can save your business. If something goes wrong with your finances, you’ll be able to catch it quickly and correct it. You may need to use specialized software to create a centralized payment factory, which allows companies to manage their bank payments globally.
Can’t Compete With the Competition.
Many times startups enter into a market they can’t actually compete in. Many companies get drowned out by their competition, their pricing or their marketing strategies. They simply can’t keep up, and so they fail.
How can you make yourself known in a market that has fierce competition? Here are a few suggestions:
- Review your marketing plan. Don’t just have a marketing plan. Update it regularly, especially if you find that marketing is one of the reasons your competition is succeeding where you’re failing. If one type of marketing isn’t working, stop using it and try something else. Don’t forget about the traditional forms of marketing. Many businesses focus only on online marketing, but traditional, local marketing can be just as effective.
- Study your competition. What are they doing right? Perhaps you can imitate them. What are they doing wrong? Maybe you can make that your unique selling point. You have to know your competition in order to compete with them. Don’t just do general research. Investigate them, their products and their prices. Learn as much as you can so that you can be prepared to go up against them.
- Don’t try to compete with the big boys. You cannot take on billion dollar companies, so don’t even try. Instead, define your competition as those companies that are closer to your financial bracket. If you want your company to make $500,000 a year, then those are the businesses that are your competition.
As young entrepreneurs, we all want our businesses to succeed. The key is to be realistic, be prepared, and be flexible. It takes a lot of courage to admit that you’re doing something wrong, but don’t keep repeating those mistakes. Fix them, quickly. It may be the only way to save your business.