7 reasons why startups fail

Avi Zolty
Avi Zolty
May 28 · 4 min read

Nobody sets out to fail — particularly those entrepreneurs with big ideas and even bigger dreams of building a business.

Yet, many do fail.

According to the Small Business Administration, roughly half of new small businesses survive the first five years. From that point, approximately two out of every three companies fail to see ten years.

So what’s behind this struggle to succeed? Often, many new entrepreneurs are so enamored with a concept they wear blinders to the realities of making it work.

While you could argue that’s understandable, it’s also avoidable. Knowing the potential traps allow you to steer clear of the common mistakes of failed startups. Even if some things prove inescapable, at least you’ll be better prepared for it.

As the adage goes, knowing is half the battle.

Let’s take a look at what you need to know to raise your business from startup to established.

1. Creating a Solution Where There Isn’t a Problem

Identifying needs and wants in a given marketplace is vital to building lasting success. You may very well have the next great idea on your hands, but if there’s little demand or an already crowded market, you’ll find yourself struggling to find an audience.

Instead, look for opportunities — an underserved market or a product or service that’s become stagnant with no immediate solution on the horizon.

Market research will help you find an audience, determine what they need and will drive you towards areas where success is more easily assured, instead of waiting for it to come to you.

2. Short on Cash with No Benefactor in Sight

Whether we like it or not cash makes the world go ‘round. Nowhere is this truer than in the earliest days of your startup.

In laying your foundation, it’s easy to burn through capital — and lots of it. Your goal should be to minimize the spend — and along with it, the risk — pushing your company towards profits with the money you have on hand.

If you can achieve profitability — regardless if its year one, year three, or year five — then you’re more likely to attract those with deep pockets to fuel your future growth.

3. TEAM = Together Everyone Achieves More — Or Do They?

It’s a nice thought, but it’s rarely true. What it should say is that Together, The Right People Achieve More, but that doesn’t roll off the tongue. It also doesn’t spell team.

If your company is one or 100, having the right people doing the wrong thing or the wrong people doing the right thing is a recipe for disaster. Sure, knowing what roles are necessary is essential for success, but so is finding individuals who can successfully operate within those roles.

You might have to make hard choices as your company grows. The people who performed so well in the beginning may not be the ones to manage you to greater success later on.

And yes, this also proves true if you’re attempting to make a solo run of it early on. In several cases, founders and CEOs require a second set of eyes to keep ideas fresh and the company moving towards its next set of goals.

4. The Same Idea is Finding Greater Success Elsewhere

The early stages of the startup are crucial. It signals a time when many founders and their teams bury their heads to make their solution work first, ignoring much of what’s happening around them.

Refusing (or just plain forgetting) to pay attention to companies aiming for the same market share as you is deeply problematic. Even in significantly underserved markets, competition can be fierce. The key is to maintain a broad focus and pay attention to all aspects of the solution.

Don’t lose your lead, get left behind or be unable to pivot and respond. Dropping sight of your competition also fogs your view of the market you hope to serve. Knowing what’s going on means you know who’s playing the game, how they’re performing, and what you need to do to win.

5. Pricing Like Goldilocks Eating the First Two Bowls of Porridge

Price too high, you lose sales and might price yourself out of business. Price too low, you lose profits and might price yourself out of business. If you struggle with pricing, you’re in good company. It’s a common concern among many startups.

The goal is to figure out the perfect price point before anyone else does.

To be sure, pricing requires a multi-pronged approach, that will demand plenty of tweaking before getting it right. However, the process will run a lot smoother by paying attention to five critical factors: Customer Needs, Internal Costs, Revenue Goals, Competition, and Market Direction.

Maintaining modest profit goals early on will help you navigate pricing swings as you dial into what customers will pay and what the market can bear.

6. Inability to Reach or Connect With an Audience

Marketing perplexes many startups to the point that a lack of marketing knowledge can put them out of business before they even realize why.

Marketing is more than crafting a message and hoping someone responds. You must identify who your audience is, where you can most frequently connect with them, what are their needs and wants, and what are the pressure points to push to have them engage with you.

The sooner you can build yourself as an authority, the sooner you’ll generate a loyal base of customers. The faster you do, the quicker you’ll lock-in pricing, elbow out the competition, and grow your bottom line.

7. You Care More About The Name on the Invoice Versus the Name on the Receipt

For our final reason why startups fail, we’ll keep it simple — care about your customers. If you don’t, someone else will.

As we’ve pointed out, startups are in a feverish push to build, create and produce. You can lose sight of the fact that eventually, someone has to purchase the result for you to profit.

For that critical reason, listen to your customers. Recognize the solution you deliver is for them and not you. Do everything you can to exceed their expectations.

Meet those benchmarks, along with avoiding the other traps that snare too many new firms, and you’re sure to exceed your expectations as well.

-Avi

Avi Zolty

Written by

Avi Zolty

YC Alum with 3 large acquisitions. Founder @skurt

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