6 Reasons Why Small Businesses & Startups Fail (Part 1)

  • 6 Reasons Why Small Businesses & Startups Fail (Part 1)

“There’s no key to success; it’s a combination.”

– Brad Lea, CEO of LightSpeed VT

You already know that eight out of ten startups fail within the first 18 months. What’s the difference between the businesses that make it, and those that don’t?

It’s a paradox: Every startup succeeds for a different reason. (Or, set of reasons.) But, the businesses that fail? According to Business Insider, those that fail almost always have one of the following mistakes in common:

  • Poor financial management skills, or a poor understanding of cash flow. (82%)
  • Starting out with too little money. (79%)
  • Lack of a well-developed business plan. (78%)
  • Not pricing properly. (77%)
  • Being overly optimistic about achievable sales, money required, and about what needs to be done to be successful. (73%)
It’s no surprise the top five final straws to break a new business’s back center on money (or the lack thereof). But, navigating murky waters of small business finances isn’t the only potential pitfall.

Here are some common mistakes we’ve seen made by small businesses who are just starting out.

Why Small Businesses & Startups Fail: Their Big Idea Wasn’t Completely Thought Through

Why Small Businesses & Startups Fail: Their Big Idea Wasn’t Completely Thought Through

It’s easy to be protective of your own ideas. But, learning to look objectively—even critically— at your own ideas is necessary if you want to create something profitable.

Before you take a business idea to market (much less look for funding) any Big Idea needs to pass muster. And, that critical evaluation isn’t just about money, either. For example:

  • Will you get into legal trouble for selling a product or service?
  • Where will you get the raw materials and labor required?
  • Will the product or service that you offer be better than the current competition?

While the above list isn’t exhaustive, you can see where it’s headed. In short, avoid wasting your time (and money) on dead-end business ideas by giving each a thorough evaluation.

How to Avoid?

Discuss your startup idea with anyone who will listen. That means not only friends, but also acquaintances or peers at industry meetups.

Too many wantrepreneurs avoid sharing their Big Idea fear someone will make it first. But, you’re far more likely to gain valuable insights from respected peers than lose out to a concept copycat.

Bottom Line: Bounce your ideas off of as many different people as possible, and you’ll be able to spot holes in your plan before they become expensive mistakes.

Why Small Businesses & Startups Fail: They Moved Too Slowly

Why Small Businesses & Startups Fail: They Moved Too Slowly

Kiko was a web-based calendar service with some pretty impressive functionalities.

Unfortunately, like over 80% of startups, Kiko went under. Unlike most failed businesses, Kiko’s founders were able to sell their software for $258,000—on eBay, nonetheless! So, how does a company with at least a quarter-million in assets fold?

According to one of Kikos’ founders, “Our idea wasn’t bad, we were just too slow and focused on the wrong things.”

Kiko’s failure is one of many businesses that serve as a similar lesson to would-be entrepreneurs. When it comes to staying afloat, it’s not the end goal that’s important—but the planning. After all, how will you aim for success if you don’t have a roadmap to get there?

How to Avoid?

Outline a specific to-do list of milestones and deadlines. Milestones, in the context of startups, are typically forecasted points along the company’s timeline that anticipate completing an event or achieving a goal, such as:

  • Hiring key people that will make an impact on your organization.
  • Launching your product, or even releasing new versions and upgrades.
  • Market validation, i.e. your first paying customers.

By strategizing defining points in your growth plan far in advance, you’ll be able to consider impacting factors such as trends in market demands or evolution of relevant technologies that help you to stay ahead of the curve—and the competition.

Reason Why Businesses Fail: Having Too Much Capital in the Bank

Why Small Businesses & Startups Fail: Having Too Much Capital in the Bank

While having an excess of money is hardly the worst move made by an entrepreneur, it’s also a potential pitfall.

Tomasz Tunguz is a venture capitalist at Redpoint and author of Winning with Data: Transform Your Culture, Empower Your People, and Shape the Future. He’s also an active blogger on his website, sharing advice and personal insight with entrepreneurs.

According to Tunguz, “Having a huge sum of money in the bank can entice founders to dramatically increase their burn rate or diffuse the company’s energy among too many projects.”

“It can be challenging to maintain the same execution discipline created by the scarcity of capital,” Tunguz continues, “as when the bank account is overflowing.”

Basically, you’re a lot less likely to bust your butt working when your startup’s proverbial wallet is full.

How to Avoid?

Small businesses want to grow, and want to grow as quickly as possible. The best way to stay on track? Similar to the previous problem, it comes down to planning. A detailed forecast of milestones and goals can put your business on a path of strategic advancement, and make sure you can accomplish growth without burning through your timeline or budget.

Check back next week for Part Two. And, if you’re interested in hearing more insights on entrepreneurial success, check out Founder and CEO Brad Lea’s top-rated podcast, Dropping Bombs! Available at www.droppingbombs.com or on iTunes.

By | 2018-09-27T22:28:32+00:00 September 17th, 2018|