Top 5 reasons why start-ups fail + rescue tips

While the overall ‘start-up survival rate’ is quite positive (more than 75% of new businesses in the U.S. manage to make it through the first year of operation, and more than 50% successfully keep going after the 5th one), it’s still extremely devastating to become an entrepreneur of failed dreams, a.k.a. the owner of a failed startup. In order to avoid joining that unfortunate bunch, beginning businessmen need to get acquainted with the possibly fatal challenges their start-ups may face after the launch and develop the preventive strategies allowing to eliminate the risk of a failure caused by the most common reasons/mistakes.

Today, I decided to look into top 5 reasons why promising start-ups fail and suggest things entrepreneurs may do to draw their businesses away from falling into the black hole.

Why your start-up may fail and how to prevent the catastrophe

1. Your start-up fails to meet the market needs

Some aspired entrepreneurs come up with quite unique, special concepts of goods or/and services they would like to sell, rush to launch a company, get excited to present their product to the locals, but suddenly run into the problem of lacking the customers — the revenue generators. Understandably, when there’s no market for the product or the service the start-up was created around, the company has little chances to survive unless the situation changes.

Maybe, the launch time was chosen inappropriately. Maybe, you went ahead the market you entered just by a few years, or even a couple of months.

Then, you may either adjust the proposition and offer your exclusive product as a ‘side’, or, if your funding allows, you may continue developing your business and promoting your product until you make more people passionate about it, build the target audience and start operating at a profit.

Maybe, your market expectations were a bit inflated and not a lot of people in your local area are actually interested in purchasing the kind of products/services you decided to provide. Maybe, it’s something that doesn’t fit into their lifestyles or budgets. For instance, opening a kosher food shop in a neighborhood/town with a fairly small Jew community, especially considering the fact that only 25% of Jews eat kosher. Or, launching a luxury cleaning company without realizing that little-to-no locals will be able/willing to spend money on such services.

In this case, you need to reassess your start-up. Find a painful customer problem no entrepreneur in your local area provides a reasonable solution for and develop a killer product that solves the issue. This way, you’ll avoid launching initially undemanded start-up, as well as make sure that even those, who’re quite reluctant when it comes to trusting start-ups.

2. Start-up fails because you ran out of cash

Start-ups are quite expensive undertakings, as they don’t start generating revenue right after the launch. Determining the start-up capital correctly and directing the cash flow smartly is one of the keys beginning businessmen need to keep their new companies alive and last through the tough times.

The lack of financial planning is one of the common reasons why start-ups fail. One of the most common mistakes businessmen make when it comes to this issue is hoping that their company will become profitable unrealistically soon and, therefore, not collecting enough money to sustain its existence while it operates at a loss.

So, turn your feelings and passions off not to make false financial assumptions. Avoid running out of money by spending it on essentials, encouraging your teammates to save on everything they can, get in touch with sponsors, be persuasive enough to make them invest in your business and act in advance to forestall the ‘cash burnout’ situation.

3. Low quality and cost issues

Great quality and reasonable price are among the rare winning points start-ups may use to attract clients and survive the competition with businesses, which have already established their presence on the market and enjoy the customer loyalty.

When the quality is disappointing or the price is higher than the target audience may afford, start-ups may experience the underperformance in revenue and eventually fail.

4. The lack of recognition

Some aspired businessmen hope that a great product that fits the market’s needs will advertise itself. Others just refrain from spending a lot of money on marketing, especially when their business doesn’t generate substantial revenue yet, or promote their start-ups using wrong channels that don’t allow reaching the target audience.

In real life, start-up founders need to direct their efforts toward getting their company recognized by as many potential customers (not just any people, but those who are interested in purchasing the awesome products offered by the company) as possible, as well as advertising persuasively enough to stimulate the customer’s activity.

5. Poor management = start-up failure

You may have the greatest product concept in the world and you may be the best professional in the field, but it doesn’t mean that you have the skills required to become a successful businessman or start-up manager. And even if you’re a natural-born businessman generating incredible sales tactics and marketing ideas, you may still experience poor management troubles if you hire people who’re not competent/talented enough to make your vision come true.

There’s no magic pill that may solve this issue for you. You just need to be a leader who recruits the best people for the start-up and manages to motivate them to reach the goals and exceed your expectations.