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4 Common Reasons Why Startup Companies Fail

Why Startup Companies Fail

4 Common Reasons Why Startup Companies Fail

You have a superb business idea. The question is – how do you know it will be a success?

The answer is simple – you don’t. And unless you try it out, you will never know it for sure. You need to take the step to find out whether your brilliant idea will transform into a successful business.

But before you take the step, be cautious.

The facts can be dampening – 8 out of 10 startups fail. But if you are aware of the common pitfalls, you can try to steer clear of them. Why exactly do startups fail? Often a combination of reasons works together and ultimately leads to failure.

“Only those who dare to fail greatly can ever achieve greatly.” – Robert F. Kennedy

Let’s take a look at the most common reasons why startup companies fail:

1) The Core Idea isn’t Right

The idea may be too small, and attract only a small niche market, in which case you won’t be able to attract investors. Or, it may be the solution to only a really frivolous problem, in which case you won’t get customers.

Another possibility is that the product or service you offer really isn’t necessary, but only an addition to whatever is already available. In each of these circumstances, the possibility of building a successful new business will remain a distant dream.

Tip: The best way to assess the potential of your idea is to present it to investors.

2) The Funds Are Dried Up

Perhaps you miscalculated how much you may need, or you spent more than you can afford, or you misjudged the time you will need to break even, or maybe it was some other reason. Whatever it is, it can spell doom for a startup.

Also, if you want to run it as a lifestyle business, you may not want to involve investors. But this strategy won’t work if you want to build a big business. Running out of cash can forestall any chance of success, and eventually lead to shutdown.

Tip: Plan your budget; and double it. Also, keep aside an emergency fund.

3) The Team Doesn’t Work

Put together a directionless leader, an unmotivated team, and no advisors – and you have the perfect recipe for disaster! A startup needs a team with all the components right; and one that knows how to manage a startup.

You need to come up with a management that understands how to build up a new business, a team that works together with the same vision, mission and ethics, and advisors who can help overcome the hurdles on the way.

Tip: Don’t take it all on yourself; it will go haywire if you have to stay away for a week.

4) The Competition is Too Tough

Unless your startup involves an original invention, you have to worry about competition, even in the first phase. Be it selling pencils or managing yacht charters, many new businesses are outcompeted by the established ones.

Again, sometimes your product may be too complicated to use, or your service may really be unnecessary. And customers prefer the time-tested solutions to innovations. If there’s a gap in your strategy, your idea may never become a successful business.

Tip: Do thorough market research, especially about your competitors, in advance.

A startup may fail for any of these, or some other reason. And even if yours does, it’s no cause to think of it as a failure and regret your step. Even Edison failed 1000 times before he came up with the light bulb.

Instead, analyze why you failed, and learn from your mistake. It’s the only way to success.

Recommended books on overcoming business failure

How to Ruin A Business Without Really Trying by MJ Gottlieb
The Pumpkin Plan by Mike Michalowicz
Zero To One by Peter Thiel and Blake Masters
Fail Fast or Win Big by Bernhard Schroeder
The Startup Survival System by Kurt Won

What was the most significant way you overcame failure? Share with everyone in the comments below:

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Cody Faldyn

Cody is a blogger, social media specialist, graphic designer, and the Marketing Evangelist behind The Entrepreneurs Library. With a long time passion for personal growth, Cody helped create a website and podcast with the intent to educate aspiring entrepreneurs on the latest and greatest books on business growth and personal development.