Top 7 reasons for startup failure

When starting a business, you want to take advantage of every opportunity to be successful. Unfortunately, many startups fail because they aren’t able to keep up with the day-to-day tasks of running a business.

During the early stages of business, entrepreneurs need to manage multiple operations to incite their business - incorporation, capital, recruiting, marketing and advertising, networking, and developing the right product or service. Entrepreneurs divide their attention to all these areas, most of the time.

TOP 7 REASONS FOR STARTUP FAILURE

1. Inability to raise funding

Problems in the fundraising process present one of the key reasons why startups discontinue operations. 

Often, this process is started very late, and in the end, the entrepreneurs have not secured sufficient funding or land up with the wrong group of investors. 

Keep in mind that fundraising requires at least six months of dedicated work involving meetings, calls, and visits. The more consistent entrepreneurs are in fundraising, the more they will realize what their startups need and what investors expect in return. 

The second common problem is entrepreneurs raising insufficient funding to support mid-term operations. When attracting investors, make sure that you plan for a minimum of 12 months of cash burn. Otherwise, you risk having to start anew, exactly after you have secured the first round. This process takes time and resources that you could be investing in your product development or sales, so when you start the fundraising process, make sure you plan it carefully.

Having an experienced financial advisor by your side during fundraising might prove beneficial both for you and your company. 

2. Lack of market need

Ignoring customers can prove to be one of the most expensive mistakes for startups. Knowing what your customers need and making sure that your startup is offering products and services that match their requirements is of vital importance. More than 42% of startups acknowledged that a lack of market demand prevented them from gaining the momentum they needed to survive. Most of the time the first product that a startup brings to market won’t meet the market need. If this happens the only solution is to combine the efforts and to search for what the customers demand in the market.

By improving the startup’s product as per the market needs and opening themselves to customer feedback, entrepreneurs can pave the road to a success story.

 
3. Run out of cash

"Cash is King" 

82% of startups report that cash problems have led to the failure of their business. 

Most business owners start a business without pre-planning the funding requirements necessary to:

• Obtain key infrastructure by inception; and
• Have sufficient cash flow to fund the day-to-day operations.

The inability to forecast and obtain the capital requirements of the business, go together with the fact that business owners who do not have a business plan at all, are more likely to be unsuccessful. Of course, good planning does not guarantee business realization, but in many cases, it significantly increases the chances for а success story.

Developing a strong cash flow is an essential aspect of any business. However, it will likely take you some time to gain customers and build up your cash flow. The worst situation you could find yourself in is running out of cash before you generate cash. In our experience, we’ve seen that it is probably going to take you longer than you think to reach the level of activity needed to sustain your business. 

Most business owners don’t have the time or years of expertise to manage their entire financial picture after their very first sale. On the other hand, for a growing company, it is most often not optimal to hire a full-time CFO. This is the time to consider outsourced CFO services to assess current cash management practices and suggest possible improvements.

We, in CFO Insights, have the right financial and entrepreneurial expertise to help you better manage your company’s expenditures, prevent costs from getting out of hand, and help ensure that the company stays solvent during its challenging early years.

4. Making Expensive Hires 

A startup can never succeed without a great team working behind the scenes as they are the people who understand and execute the founder’s business idea. While you do want experienced professionals on your team, save that big salary hires for after you have secured a stable flow of profits. That means you will have to take on a heavy load of responsibilities. There are some roles within startups that don’t necessarily require a full-time hire in order to be handled professionally and properly.

By outsourcing key business processes you will enable your startup to save money while also freeing up vital members of your team to focus strictly on the business processes they specialize in and are best suited to perform.  

 
5. Poor Pricing

Figuring out how to price is always a challenge, but for many startups, it was a reason they failed. For early-stage companies, it is a constant compromising act between pricing high enough to maintain healthy margins and cover operating costs, while also needing to price low enough to entice customers.

The solution is: Match prices with 1) the cost structure of your business and 2) the market dynamics. Then test, test, test! 

6. Failing To Plan For The Future

"If you fail to plan, you plan to fail". [Benjamin Franklin]

A mission to the moon requires a properly thought out plan. So too does your business. In today’s global world, not looking to the future is a recipe for failure. Strategic planning of your business will force you to seriously re-think all areas of your business and will help you to create a tailor-made plan to innovate your company and propel it into the future with even bigger success.

7. Not Leveraging Their Network

The mistake startups often commit is not benefitting from the network of experts and startup mentors available at their disposal. Finding the right business consultants can open immense opportunities for the business to new markets, potential clients, business contacts, and successful alliances.

Whether your business is starting up or scaling up, CFO Insights can provide you with financial and business expertise to complement you along the way of pursuing business eminence. 

To learn more about how you can avoid making these 7 mistakes, schedule your free consultation.