5 Reasons Start-Ups Fail and How You Can Prevent Them


According to entrepreneur statistics, around 55% of US residents believe they can start and run their own business. And that enthusiasm is something that comes easily when you’re just starting out. You’ve got a great idea for a product or service, and you want to get it out to the market as soon as possible. Unfortunately, this early enthusiasm might lead you to make rash decisions and mistakes that could cost you your new business.

In this post, we will look at the top mistakes that new start-ups make and how you can avoid making them yourself.

1. Poor Market Research

A common problem that many start-ups face is the lack of market interest. This is generally due to poor market research. When gauging market interest, it is crucial to look at your direct and indirect competitors. If you want to succeed, you will have to do things better than your direct competitors in the same line of business.

Indirect competitors can be a bit harder to establish, though. These are companies whose products are different than yours, but might encourage clients to spend money with them instead of with you. It is essential to consider these as well. 

Generally, consumers can be slow to change brands. Even if your company offers a better solution to a client’s problems, you might still need to convince them to make the switch. This is because people tend to choose the easiest option, the one they’re familiar with, even if it might not be the best one for them.

So, the more research you do upfront, the better. Instead of just assuming that everyone will love your product or service, ask yourself the following questions:

  • Who are my competitors?
  • What products are people using now that fulfill the same needs as our products do?
  • How can we do things better?
  • How can we make it easier for consumers to switch to our brand?

2. Lack of Sufficient Market Need

Along with market research, it is also important to establish if there is sufficient interest for you to run a business that would continuously make a profit. 

Let’s say, for example, that you plan to sell scooters. How many people in your town would buy one? What about in the neighboring towns? What happens when everyone has bought their own scooter? How will your business continue to make a profit?

In this case, it would be wise to consider selling scooter parts, accessories, and potentially some consumables related to scooters. That way, even if everyone in town gets one, there will still be things people could buy from you.

3. Lack of Funds

Research shows that the lack of funds is one of the reasons for business failure. And although entrepreneurial magazines can be inspirational by telling us stories about billion-dollar businesses that started with little more than passion and a great idea, what they tend to gloss over is the number of start-ups that actually fail. Unfortunately, this can engender optimism that might not be realistic.

Therefore, it’s important to pay close attention to finances. Take control over your spending, because every penny you earn in the beginning will need to go back into your business.

4. Vague Budget

It’s important to create a basic budget for the upcoming year. Break it down into short-term and long-term spending, so you have both a weekly and a monthly budget. That way, you will be able to work out what your recurring expenses will be — rent, insurance, payroll, etc. 

Try to list every expense that you can think of, including annual payments that will be made. That will give you an idea of just how much money it is going to take to keep the business running during the first year.

Then, work out what your stock will cost you going forward, with one small caveat — work this out assuming there will be a consistent turnover of stock. Why? You’re bound to have instances where stock doesn’t sell; you’ll need to have enough money to buy more of what is selling.

Ideally, you should have enough funding set aside to cover your first year of expenses. If you can’t quite go that far, then you should have at least six month’s worth. Additionally, a good tip to remember is that it’s better to raise funds through savings and investors than through high-interest loans.

5. You’ve Got the Wrong Team

Choosing the wrong team is another mistake that can seriously harm your business. You should start by looking for employees that have some experience in the industry. Then look for those that can add serious value due to their expertise. It can also be a good idea to outsource your bookkeeping to an accountant instead of dealing with it in-house. Having a professional and supportive network is extremely valuable. Delegating to a team you can trust will allow you to focus on the tasks at hand without worrying whether everything else will get done.

Experience or Attitude?

When hiring employees, it’s important to look at two factors — experience, and attitude. While experience is definitely important, having a good attitude is just as crucial. Why hire someone just because they’ve been in the business for ten years if they have poor customer service and don’t produce quality work. You want people who are passionate, driven, and, most importantly, invested in the success of the company. They should be willing to put their all into the company.

Final Notes

As you can see, the harsh reality of starting a business can be quite intimidating. But, with proper research, funding, budget, and a bit of time, you are bound to have much fewer problems. Plus, each of these problems can be solved with thorough, in-depth market research. So, look into your competitors and your target audience, and you are more likely to succeed.