5 Reasons Why the Majority of Startups Fail — And How to Make Sure Yours Won’t
Two out of ten startups don’t make it a full 365 days in the United States. Here are the five most common reasons to help you avoid this statistic.
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Startup life is often portrayed as glamorous and financially rewarding, but that's far from reality. 20 percent of startups won't even make it to the one-year mark, and 70 percent fail within ten years according to a report on USA Today by The Motley Fool. For startup founders, the odds are stacked heavily against success, but you can't let fear stop you.
Instead, you need to identify wheat the common reasons are for failure, and be certain to avoid them at all cost. There are endless numbers of obstacles and pitfalls, but there are some common occurrences related to failure, with the five most common listed below.
1. Cannot compete against industry leaders
It's much harder to operate above water when you have stiff competition that is fiercely trying to dominate the market and destroy all competitors, including you. If you are entering into a very competitive industry then you are going to automatically have a massive target on your back, and you will undoubtedly be facing a constant uphill battle.
If you launch a startup in a competitive niche, you have to be fully aware that you might not be able to compete with the big players of the industry. Can you image an e-commerce brand trying to go head-to-head against Amazon? It would not be pretty. Knowing when to pivot can not only help you stay in business, but also help to identify new profitable opportunities.
2. Unsustainable burn rate
"It takes zero talent to waste money, and sadly, many new startups secure funding and burn through it at alarming rates, expecting to get more when the balance hits zero. When they aren't able to raise more funds they are dead in the water and the startup fails," explains Blake Brossman, founder of PetCareRx.
You need to have full control of your spending, down to every last penny, if you are going to make it in the long-run. When expenses get out of hand it can spell disaster for the business. You don't need state of the art offices and outlandish employee perks out of the gate. If you build a successful business those can become a reality. Try to operate lean in the early stages, cutting costs as much as possible.
3. Failing to create a strong startup culture
Nothing will crumble a startup faster than a weak team. If you don't identify and establish a company culture from day one, you will more than likely fail to experience long-term success. Your team is your greatest asset, and when everyone isn't on the same page, pushing toward the same goals, the company trajectory will be all over the map.
If your team doesn't feel like there is unity, it will result in a downward spiral. It can take several years, as team members move to other companies and focus their efforts elsewhere. Make sure you appreciate your entire team, while letting them know how important they are to the overall success of the startup.
4. Lack of an effective sales funnel
Every startup needs a sales funnel, and it needs to be one of the main focuses. If it's an afterthought, many opportunities will be missed and time wasted. A well-oiled sales funnel makes the entire selling process smooth and can operate around the clock. It's essentially your most valuable employee, as it never takes a break or needs a day off. When you do it right, your sales funnel educates and informs prospects, which warms them up prior to purchasing," says Ryan Hulland, President of Netfloor USA.
If you don't have a funnel in place and assume that you will convert enough cold leads and traffic, you will be in for a wide awakening. You need to educate and nurture leads, providing them with social proof, testimonials and educational information that makes them feel comfortable about doing business with your company.
5. Unable to deliver value
Every successful business delivers value, regardless of its size. The startups that come on the scene looking to make a quick dollar will soon fail. Those that focus on providing value will see the money and success follow behind, naturally.
Look at unicorns like Snapchat and Instagram for a minute. They focused 100 percent of their effort on building amazing products that their users loved before they even considered monetization. They are now valued at billions, due to their sole focus on delivering quality to their end users.