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It has been estimated that as many as 90% of startups fail within the first five years globally. Yet, every year, both new and seasoned entrepreneurs put their heart and soul into starting a new business venture. As a serial entrepreneur and investor, I have built multiple businesses in the last few years. While some failed, a couple of them succeeded and went on to become multi-million-dollar companies with offices on a global scale.
Being an entrepreneur is often seen through rose-tinted glasses, but the reality is that it requires hard work, perseverance and grit. You can expect to work a lot of hours, and work-life balance can be challenging. You are going to need to focus on designing the product, acquiring new customers, doing the marketing and taking care of finances. In fact, it can feel overwhelming just how many hats you will need to wear. What’s more — there is no guarantee of success.
So, why do so many startups fail? While lots of different factors can lead to startups failing, here are just a few of the top reasons:
5 key reasons why startups fail
One of the top reasons startups fail is they run out of cash or they fail to raise the capital they need. There can be many factors that contribute to this. They may struggle to attract investors and get them on board with their idea, or perhaps they struggle to get the customers and clients they need to bring in cash.
Startups often do not go as planned with hitches along the way, which can cost money. So, unless you have the cash flow, you are going to struggle to get the work done so that the product can be moved to production and you can start making money. Furthermore, managing costs poorly can often make the difference between success and failure.
No market need:
Perhaps you feel that your idea is fantastic and solves a really important problem, but if it does not serve a market need, you are going to struggle to get interested buyers. This can mean that your product or service does not fill a gap in the market, or there isn’t a market for the gap you are trying to fill.
Sometimes people try to get around this by marketing a product to everyone, but this is often too broad, and you risk not being able to create an audience around the product or service. Even if you have a great business idea and it has a market need, it can still be a case of bad timing. If you are too early, the market may not be ready for your business — and if you are too late, the market may be saturated, or the hype may be over.
Ousted by competition:
Awareness of competition and the overall market is essential if you are to come out as a leader since the competition can be fierce when it comes to business. However, many entrepreneurs do not put the necessary time and effort into assessing and learning from the competition or do not take the time to develop a unique value proposition to help their brand stand out from the rest. Around 20% of startups fail due to being out-competed.
Having a flawed business model:
Business models are crucial to the success of a startup, enabling you to scale and become profitable. It can help give a startup a competitive advantage and help them understand their own operations better. It can also lead to an established finance plan to increase cash flow and profitability. Yet, one of the top reasons startups fail is because entrepreneurs have a flawed business model, and as such, cannot scale or sustain the business.
Lack of passion or burnout:
Starting a new business can throw your work-life balance out of whack. You may be working long hours or weekends just to stay on top of things, yet you run the risk of being burnt out. Unfortunately, we live in a world where working to extremes gets you a badge of honor, yet it can have a negative impact on your health, home life and your work. Many entrepreneurs lack the tools to manage the pressure of running a startup and can quickly find themselves descending into burnout if they are not careful.
Related: 5 Tips to Prevent a Startup Failure
How can entrepreneurs set themselves up for success?
As an entrepreneur myself, I know how challenging it can be to get a new business up and running and make a profit. That is why we at VentureRock, a digital venture capital platform and ecosystem of founders, backers and builders building the next generation of global tech companies, set up a 72-step program to help accelerate startups and reduce the startup failure rate.
While there isn’t a miracle formula for success, there are some key points you can focus on to set yourself on the right track.
Remembering the “why:”
This tip seems so simple, but it is crucial — and that is remembering the “why.” This could be why you are doing this or why you feel your business is important. It can be your anchor in maintaining a clear vision of what you want to achieve and what problem you are working to solve in the market. It also reminds you of your passion and provides a starting point for setting a solid foundation for your business and establishing core values.
If you focus solely on selling products and making money, the chances of you succeeding in the long term are small, and most will give up. This is where my company’s approach plays an important role, working with ventures from seed to scale and guiding founders toward long-term success.
Playing to your strengths:
Playing to your strengths can be critical in early-stage startups, but they can often be your secret sauce and what makes your business yours. We all have unique qualities and strengths, and they can help set your company apart from others. Look for ways to leverage your strengths, and put them to the best use possible. It is important to stay true to yourself and make sure that what you are doing is in alignment with your sense of happiness, purpose and meaning.
Getting support and building up a network:
As an entrepreneur myself, I am passionate about helping entrepreneurs succeed and to use my experience to help decrease the failure rate for startups. Getting the support you need early on can be key, whether that is joining groups or joining masterclasses with like-minded people to build up a network. I strongly believe in working closely with people who are already where you want to be, so it can be incredibly useful to work with a mentor.
Being an entrepreneur often means you need to take a risk, but it is better to go for it than to regret not trying later on in life. You never know the outcome of your efforts until you do it, and while there may be obstacles along the way, belief in yourself can get you a long way.