The 15 Most Common Reasons Small Businesses and Startups Fail

7. Being unprepared for changes in the market

Many startups fail because they are unprepared for changes in the market. They might have a great product or service, but the same products can quickly become obsolete if the market changes.

This is why it’s crucial for startups always to be adaptable and ready to change their plans if necessary.

For example, imagine you have created a new app that is very popular with users. But then, a new operating system adopts much of the functionality found in your app.

Suddenly, you face the prospect of losing all of your users, and you’re suddenly back to square one.

Or, imagine that a new company comes out with a similar product that is cheaper and better than yours. If you don’t have a plan to improve your product or lower your prices, you will lose customers quickly.

Changes in the market can be challenging to predict, but it is crucial to be prepared for them. You can’t afford to be stagnant in the volatile world of e-commerce and tech.

If you are closely attuned to updates in your industry and are ready with a plan for what you will do if the market changes, you are more likely to ride out the market shifts.

8. Failure to learn from mistakes/make adjustments

Most startups don’t have a straight line to success but have many ups and downs. There are going to be mistakes, miscalculations, and failures.

Persistence is vital for startups, but if adjustments to a better way of doing things don’t also occur, a startup may persist right out of business.

Persistence only works if the business model is sound and the right decisions are made along the way.

9. Inability to raise capital

More than 80% of founders self-fund their business.

Only 0.05% of startups raise venture capital.

Consider whether you’ll need outside funding. You can find business investors or find other ways to finance your small business.

But be prepared for rejection. If you have never raised capital for a startup, you will be surprised by how often investors reject your ideas.

As a founder, you should be prepared to constantly network and find new investors. It helps when you can also present your ideas under the best winning conditions and with a winning pitch deck that helps you secure funding.

10. Bad timing

If you release your product too early, before it’s ready, people might think your product isn’t good enough.

This is critical because once you lose your customers to a negative first impression, getting them back can be an uphill battle.

Take, for example, Vreal, a VR platform. The company intended to build a virtual reality space for video game streamers to hang out with their viewers and raised almost $12M in its Series A in 2018.

However, the available hardware and bandwidth capabilities at that time didn’t evolve as fast as the company had expected. And although Vreal delivered on its promise, it struggled to attract any significant usage from its target market.

If you release your product too late, you may have missed your window of opportunity in the market.

Too many business owners wait to launch their business and then find that several competitors have entered the market ahead of them.

11. Ignoring cash burn

Money is the lifeblood of any business, especially startups. It is the key resource that is needed to keep the business running and to help it grow.

Twenty-nine percent of startups fail because they run out of money.

Many startup founders focus on one area of the business (i.e., product development) and ignore the rate at which they burn through cash.

They can likewise find themselves in the pitfalls of overspending by scaling too fast, too soon, and then assuming that investors will gladly sign checks to replenish the company’s coffers.

But you don’t need to be a miser to be successful. While managing your burn rate is essential, it shouldn’t hinder your business growth.

The best entrepreneurs spend only on essentials.

Strategic spending on marketing campaigns and other initiatives designed to gain market share and attract new customers differs from the daily operational expenses incurred, for example.

To avoid being caught on your back foot financially, always know how much cash runway you have left.

It would help if you likewise got serious about the two main variables that will determine your burn rate:

• Unit economics – refers to the amount your company earns on every item your company sells. You can find this value by subtracting the new customer acquisition cost from the lifetime value of that customer.
• Cost of growth – refers to the most significant expense. For most startups, it will be employees (salaries and benefits).

Once startup teams identify their unit economics and cost of growth, they can make informed decisions on how much needs to be raised to cover the burn rate long enough to achieve your goals. The rule of thumb here is that companies should raise enough money for 12-to-18 months.

12. Lack of core skills

It is helpful (but not necessary) for someone looking to start a food business to have competency and experience in restaurant management. Entrepreneurs boost their odds of success if they pick industries that value the skills they excel in and love to practice.

That said, as amazing as founders are, they can’t do everything. A business is multifaceted and will require specializations for it to run smoothly.

Delegation is crucial for your small business.

As a founder, your skills need to be complemented by specialists. More importantly, as a founder, you must be mindful of what you don’t know (more than what you know).

If you and your co-founders find that you lack the skills or abilities to get your company going, identify those needs early on. As your startup grows, you can start assembling a team of specialists based on your need.

13. Overlooking the competition

Forget what you’ve heard about ignoring the competition.

Every successful business owner studies and understands their competitors.

Around 20% of startups fail because their competitors overtook them. This can happen even after you’ve been in business for three to five years.

Competition can arise anywhere and at any time.

It might be through a new entrant who comes with a better product or service, an established player that enters your market, or another startup that can execute better than you.

If you’re not prepared to deal with competitors, their presence can quickly lead to your business’ downfall.