October 24

5 Reasons Why Startups Fail and How to Avoid The Death of Your Business

The prospect of starting up a new business is exciting. However, the sad reality is that 20% of startups don’t make it past the first year mark, and nearly half fail within the first three years. From poor marketing to a poor founding team, there are many reasons why startups might fail. But don’t worry, I’m here to tell you what some of these are – and how to avoid them.


1. No Market

reasons startups fail - no market

CB Insights ran a post-mortem study on why new businesses had failed, uncovering that 42% was due to a lack of need. Product/market fit is essential. Your product or service may be the best out there, but if there is no demand for it, it simply won’t sell. In relation to this, many new businesses are simply outcompeted by competitors as they struggle to attract customers in a market that is already over-saturated with similar products/services. If you’re not fixing a gap in the market, you need to question whether your business idea is viable.


2. Poor Marketing

reasons startups fail - poor marketing

Your product may be the best on the market, but no one will know this unless you can successfully make your target audience aware of its existence. Businesses need to stand before their target audience and effectively show them that they have a solution to their problem. A study by Nielsen revealed that only 63% of business/consumer service adverts placed online reach the target audience. While 100% success in reaching a target audience is somewhat unrealistic, this study definitely highlights the need for more effective marketing techniques from some businesses. A well known long term strategy is to employ ‘white-hat’ SEO services from qualified experts to be found on search engines organically and being very careful to avoid the temptation to employ cheap freelancers who employ black-hat techniques which in the long term can be highly damaging, even leading to your business domain being blacklisted in Google and other search engines. Even more worryingly, as many as 44% of small businesses in the US do not have websites; this is pretty detrimental given how many people go to the internet to search for businesses and services.


3. Missing Customers & Losing Leads

reasons startups fail - losing leads

Market research carried out by us at Handlr found that 43% of small businesses did not answer their own business sales phone lines. This can be a huge problem as potential customers will likely call the next business who offers a similar service, meaning your competitors will steal your customers! Not answering your business sales line could also cause your potential customers to lose trust in you. If you feel that you may not be able to answer your business line, perhaps you could benefit from a call answering service to ensure you capture and engage new customers.

Similarly, many businesses miss out on new customers by not engaging with their website visitors. If a visitor is on your website, you want to proactively engage with them in order to answer their questions and help them to feel more positive about purchasing from your company. Proactive live chat software is an effective tool to do this – it helps to garner trust and build a relationship with the customer right from the start.


4. Running Out of Cash

reasons startups fail - running out of cash

Many business owners fail to properly analyse and pre-plan the business start-up costs, and consequently, run out of cash. New entrepreneurs frequently underestimate just how much money may be needed to start up their business. For example, a financial bandwidth is so important when building and testing a new product, as you may find something isn’t working and need to spend more to improve it. This can throw up huge amounts of unforeseen costs- therefore it is critical that you meticulously plan out all costs. As Benjamin Franklin once said: “if you fail to plan, you plan to fail.”

Not only this, the art of balancing the price of a product high enough to make a profit and low enough to attract customers is difficult to master. The best thing to do is put a price on your product and see what happens. If no one signs up, this suggests you should think about lowering your price; if you get a lot of sign-ups, perhaps you can justify raising the price.


5. Poor Founding Team

reasons startups fail - poor founding team

A diverse team with a broad range of skill sets is imperative to the success of a new company. A weak team will cause you to crumble. Fast. Your team is one of your greatest assets, so make sure its made up of great people.  If there is unbalance in the workplace, or a lack of unity, the trajectory of the company could end up being all over the place. Make sure your team feel appreciated and that they are important to the company. A leader needs to establish a vision for the company and guide the team to achieving that vision. The entire coordination and character of the team need to work in harmony- this is a key factor in realising the goals of the business.


There is no hiding the fact that the chances of success for a start-up company aren’t as high as one would hope, but an effective, well-thought-out business plan can help you pinpoint where potential problems could arise. What are your thoughts on why startups might fail? Please leave a comment as I would love to hear your opinion!


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