Startups never fail for just a single reason. Failure is tied to a series of poor choices. Understanding why startups fail is critical to avoiding internal issues.
Even with adequate financial support and market demand, most startups fail.
As of September 2020, 487 unicorns exist with a cumulative value of roughly $1,537 billion. 487 is nothing compared to the millions of startups around the world.
Opening a business always involves risks. Unlike their small business counterparts, however, startups face additional challenges often too dire to overcome. Outsiders can’t understand how a company could grow too fast and fail – but it happens too often.
Fortunately, you can avoid most major problems with a little preparedness and planning.
Quick takeaways:
- Startups don’t fail for one reason alone. Several issues pile on as pressure builds until something finally gives way and receives most of the blame.
- Avoid most issues with prompt access to information and intentional action. It is essential to address problems like product demand with successful pivots.
- Startup success comes from the top down. Leadership must draw up a comprehensive internal strategy and delegate roles to the right individuals. A strategy and the right tools ensure every action is intentional and focused on growth.
How Many Startups Fail?
According to CB Insights, 70% of tech startups shut down about 20 months after their first funding round. For consumer hardware startups, the figure is even grimmer: 97%.
Top 10 Reasons Why Startups Fail
While scandals certainly happen, most startups don’t fail for any single reason. Rather, a combination of problems lead to their downfall. Even in cases of scandal, the misconduct only compounds other problems like market demand, competition, and management.
1. Market Demand Problems
Startups often fail because their products/services don’t address customer problems accurately. For example, a law firm doesn’t want more efficiency. It wants more clients.
Other startups focus too much on consumer products when they’d drive more revenue as business-facing organizations.
In some cases, you can address market demand issues swiftly with marketing and development tweaks – if you catch the problem fast enough.
2. Funding Dries Up
Wow Air went bankrupt in 2019 and took a third of Iceland’s economy down with it. Many times, arguments over how to spend money create the biggest problem in startups. Results suffer, investors grow weary, and the runway closes.
3. Team Members Aren’t Aligned
Startups can’t afford to waste hours and energy. Unfortunately, when departments face constant conflict and poor direction, that’s exactly what happens.
4. Pivoting Problems
Pivots can go extraordinarily well, or they can tank. Startups that poorly plan their pivot, or do not pivot at all when needed, risk failure.
5. Expanding Too Fast
Like pivoting, growth requires a strategic plan and execution. Startups should only expand once they have dedicated resources, funding, labor, and a strategy to put everything into practice.
6. Lackluster Marketing Strategies
Marketing has a massive role to play in getting startups off the ground. Understanding your audience is key. Without seamless access to data, a comprehensive strategy, and coordination with sales, marketing strategies are doomed — and they’ll take the company with them.
7. Outpaced by the Competition
While obsessing over your competition is never healthy, ignoring them is equally detrimental. A bad combination of changing market trends and a rise in competition has led to the demise of many startups.
8. Neglecting Customer Needs
Several startups become so overburdened with internal disputes, alignment, and lead generation that they neglect their existing customer needs. Not only does this create a surge in churn, but it also shoos away potential leads.
9. Poor Products and Mistimed Launches
If user experience isn’t a top priority during product adjustments and scaling, revenue is sure to dry up. Likewise, pushing launch dates back or launching too early both place stress on fragile startups.
10. Inexperienced Leadership
People naturally learn through mistakes. Managing cash flow, team members, marketing, sales, and strategy leaves plenty of room for error. Even experienced leaders often make mistakes.
How to Avoid Becoming a Statistic: Develop an Internal Strategy
Running a new business is never easy. Fortunately, internal planning can help you manage the things in your control.
Create a Strategic Roadmap
Your strategic roadmap lays out your goals and dictates a path towards them. A strategic roadmap is flexible enough to adapt as you scale yet offers enough structure to keep your team grounded.
First, map out your goals. Goals should be specific, measurable, and backed by a timeline.
Once you have just a few key goals, you can assign roles and responsibilities to departments and individual team members. Building this strategy first will ensure every action someone takes is intentional and in the best interest of meeting a specific goal.
Leadership must be on-board with your strategy first. Engaged leadership is vital for encouraging engagement and motivation across the entire team.
Issues addressed:
- Misalignment
- Leadership
- Expanding too fast
- Funding
- Market demand
Get Marketing and Sales Aligned
You can avoid several external problems by addressing internal issues first. For example, it’s much easier for marketing to pivot its audience strategy when the sales department provides updated feedback on leads and conversions.
A lack of alignment leads to reactionary tactics across both departments. Once you get stuck in a reactive strategy, it’s a huge challenge to dig yourself out.
Issues addressed:
- Marketing strategies
- Customer service and needs
- Competition
- Pivot failures
Use a CRM to Track Leads and Customers
A customer relationship management (CRM) tool serves as a dashboard for all sales and marketing activities as well as several internal processes.
Your team can use a CRM to collaborate and share data between departments.
Access to timely data is critical for averting major startup blunders. You can avoid so many problems relating to competition, product issues, lead nurturing, and marketing strategy by sharing information freely.
When people have access to accurate data, they can swiftly adjust tactics and prevent disasters.
A CRM also helps visualize data from several sources with graphs and charts. Digestible data comes in handy for managing growth and planning resources. Plus, visualized data is essential for investor presentations and securing future funding.
Issues addressed:
- Funding
- Customer service and needs
- Marketing
- Team alignment
- Pivoting failures
- Competition
- Market demand
Aim for Sustainable Growth – Not Unicorn Status
With high valuations come higher pressure and risk. Without a flexible yet structurally sound strategy, mistakes are inevitable. Engaged leadership and a comprehensive strategy ensure startups stay on course for scaling during times of massive growth.
Is your startup prepared to make the right decisions? Take the Sellerant readiness assessment.