Top 9 Reasons Why Most Startups Fail (Causes & Solutions)

A startup is a teamwork with lots of efforts of each and every team member in establishing any business. Some startups succeed, some do not. Fact says that nine out of ten startups fail and their failure teaches us the best lessons.

What are the main reasons behind their failures? Founders blame investors, investors blame others, and marketing people blame it all on the recession. A great team is not just a group of smart people, they should complement each other’s strengths and mitigate each other’s weaknesses. Great entrepreneurs should identify their faults, learn from their mistakes and take steps to minimize risk early.

As a founder, you must attract and retain the right people to build the technology that understands your industry and scale your company. There are things that you must possess to be a successful entrepreneur, but they won’t guarantee success. You would at least improve your chances of success. So, we are going to discuss some comparisons of the reasons for failure and the factors for success. You can also take advice from experts of our QuickBooks Support team.

Main Causes Why Most Startups Fail

1. Poor allocation of resources and money.

Startups sometimes fail due to not having a proper plan about how many people they need to hire, when is the right time, and which teams should be invested in at the first stage. The founders don’t want to give up a piece of the pie when start-ups run out of resources. It happens generally due to the budget was not planned properly, the burn rate was too high, or it just took longer to raise the first round than initially expected.

2. Not realizing the competition in the market.

We often get distracted instead of focusing on our own things due to the competition. Ignoring the competition is a recipe for disaster of startup failures. You need to develop products according to market needs. It is not possible to create a viable product in high demand without measuring, trusting the numbers, tracking, validating, and optimizing the data you get from your clients.

3. Arrogance and Hubris

It is good to be always overconfident for any successful entrepreneurs. Without overconfidence, nobody would have the courage to start their own business. But, sometimes it turns into arrogance. Due to weak marketing or poorly planned sales efforts, many excellent products have failed in history. Hubris and arrogance cause startups to fail through poor marketing, product mistimed, need or lack of business model, and not Using Network/Advisors.

To fix it: You need to temper your overconfidence with the humility to accept criticism from others without becoming defensive.

4. Egotism

Startups require talented and energized employees having special knowledge, creative skills, and experience. However, building a business is always a team effort. Egotism causes failure of startup through disharmony on Team members or investors.

To fix it: You should read the newly-published book which contains team-building rules based upon actual scientific research or survey on Startup.

5. Imbalance

The lack of work/life balance creates stress and leads to bad decisions and yet many startups try to operate in round-the-clock crunch mode. This imbalance causes startups to fail through a lack of focus and passion.

To fix it, do follow some simple things:

  • Exercise or meditate every day,
  • Turn your phone off when you go to bed.
  • Eat proper diet timely, etc.

6. Inflexibility

It is the most important advantage over an established firm of any startup. But, there’s a natural human nature to continue to pursue a course of action after it has been proven unworkable. Inflexibility causes startups to fail through failure to pivot.

7. Running out of cash

A real reason that new startup fails is that they came up short on money. A key occupation of the CEO is to see how a lot of money is left and whether that will convey the organization to an achievement that can prompt successful financing, or to cash flow positive. The reason for this could be that many startup founders are engineers and technicians by profession and by heart, the only thing they know is how to create a perfect product that can solve the issue and they only launch the product after finding the perfect solution. This could create a major issue in the early stages when companies needed cash to keep them alive. If you want to prevent cash flow statements then you should be identified to able any of these signals as soon as possible low-profit margins, high salaries of employees, recurrence purchase quantity is less, client delaying payments, and high churn rates (employees leaving the company or customer unsubscribing the service). If you are noticing any of these cash flow situations, then this is a signal that your startups are about to go through a cash crunch.

8. No market demand of your product

Many startups and new companies make preassumptions that their products or invention is so demanding that the market will beg for it and they will start tons of money as soon as their product hits the market. Most of the startup founders are unable to find out the actual worth and potential of their product instead of this they generally overestimate the worth of their product, especially in the early stages. This is one of the reasons due to which many startups have to unwillingly divert from their original plan to some other market. Therefore, it is important for entrepreneurs and startup founders to evaluate their products in the early stages to avoid such market rejections.

9. Poor Marketing

Marketing is one of the important aspects that decide how is your product is going to perform in the market. No matter how good your product is if no one knows about your product then it is definitely going to underperform. We are not saying that you are going to need a professional marketing team or PR team at the budding stage of the business but you need to create a presence on social media or in the local press about your product and business. Startups usually ignore the importance of marketing and brand creation in the early stages which leads them to catastrophic results.

You can be featured in the websites and magazines that will help you in bringing the attention of the authoritative and popular audience to you. Therefore, it is important to spread some good words and to create noise so that the maximum number of people know about your business.

Achievement for raising cash

The valuations of a startup don’t change in a linear fashion over time. Basically,  it was a year since you raised your Series A round, which does not mean that you are currently worth more cash. To achieve expansion in valuation, an organization must accomplish certain key achievements. For a software company, these might look something like the following these rules:

  • Progress from Seed round valuation: The goal is to remove some real components of risk. That could be contracting a key colleague, demonstrating that some specialized hindrance can be survived, or constructing a model and getting some client response
  • Product in Beta test, and have client approval. Note that if the item is done, however, there isn’t yet any client approval, valuation won’t probably build much. The client approval part is unquestionably progressively imperative.
  • The product is delivered, and some early clients have paid for it, and are utilizing it underway, and detailing positive criticism.

Increasing Sales and Reduce Costs

This is where more business owners start when they try to improve their cash flow. If you look close enough, there are always places you can cut fat and this can uncover significant areas for improving cash now.

If you’re an e-commerce merchant, you may be happy with your software platform, but it may be costing you more than it needs to. The problem with legacy software is that companies get used to using the same platform for many years with the same recurring costs to operate and maintain the system that they don’t know there are cheaper and more streamlined options out there. What they may not also realize is that their platform may be limiting their rate of growth.

Take Big Commerce Enterprise vs Shopify Plus for example. If you’ve been on Big Commerce Enterprise for a while, you may not know that e-commerce merchants on that platform are lagging in growth compared to other platforms like Shopify. It may also be easier and cheaper to scale up.

By making a shift in a critical system, it could boost growth and reduce costs.

Wrapping Up!

Hope you will consider these reasons and solution for your startup. If you have any queries, you can ask the accounting wizard of WizXpert. They will guide you and resolve your all issues.

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