Main Reasons for Startup Failure
Launching a startup is one thing, but making it economically viable is quite another. Many successful businessmen claim that believing in your project is the most important factor in its success. The main reason for a project’s failure is its inability to generate enough revenue for its further development.
There may be other reasons, such as lack of investment, problems inside the team, difficulties with product promotion, unsuccessful business model, etc. At the initial stages of implementing a project, entrepreneurs are very enthusiastic, because they have a strong incentive for its further development. However, they should always remember that they’re building a business and not playing Steve Jobs.
The first year of operation is the most difficult time for any startup. According to some studies, 70 to 90% of startups shut down during this period. After looking into the situation, Startup Genome found that 92% of startups go bankrupt within the first three years of operation, while 74% of them fail because their owners are prone to overestimating their capabilities and unduly inflating office staff.
However, some entrepreneurs have successfully navigated through initial impediments and managed to create a sustainable business. How did they do it and what obstacles did they have to overcome? Let’s try and find out.
Riding the Crest of the Wave
It is especially difficult when you choose a new and unregulated industry. People may have little understanding of advanced technology and not be aware of why they need it. Creators of a startup should, therefore, explain to them what it is all about and how they can earn money with it. Unless you do it in good time, it may be too late afterward
If it’s a high-tech startup, its owners should spend some time promoting the new technology themselves. Of course, it can interfere with their primary business activity, but they will be able to reap the benefits later on. Being pioneers is difficult but honorable, so why not use custom papers services for the first time, too?
Financial Assessment
It may come as a surprise to many people, but money is not exactly what a startup needs at the initial stages. Professional assessment of a project is much more important than the funds a potential investor can provide you with. Why? Because it can help you avoid unnecessary spending.
Very often, startup owners do not have any idea how much money they spend and how much they earn. And it doesn’t matter whether you own this money or borrowed it – you can spend it very quickly on ads, office rental, salaries, stationery, etc. The problem is that business proprietors cannot always adequately analyze the financial situation they find themselves in.
Some investors, who are interested in the project’s success, can recommend hiring a competent financial expert. Of course, you can offer a financial analyst to join your team, but hiring them on a permanent basis may prove to be too expensive at the beginning. Maybe such an expert will not be needed at the initial stages, but in several months’ time, you will surely require their services. In this case, it would be better to use outsourcing services.
Selecting Investors
Finding a suitable investor is a rather painful process. On the one hand, a startup manager should not be very picky about investors because they risk being left with nothing. In fact, any investment proposition at this time should be considered a blessing. By searching for better options, a startup owner can waste time, which is in short supply as it is, given a very high probability of failure at this stage. On the other hand, you should not agree to close a deal if you feel there’s a catch to it. Even if it seems like a once-in-a-lifetime opportunity, you better think twice about taking it. Consider the problems you may face in the future and choose your partners very carefully.
Every startup owner is convinced that their project is precisely what potential investors need. However, the latter may disagree with them. If a businessman can prove that they do not really need any investments, that can spark investor interest. Having the right business mindset also makes a good impression on investors.
Investors are generally spurred by the fear of missing a successful project. At the same time, they are ready to invest in things that are pretty hard to find. Each investor has their area of specialization, which is why there is a big difference between financial analysts who manage other people’s money and financiers who invest their own funds. Meeting the latter is a godsend for any startup.
A reasonable investor will never require a large share of your operation. Any professional can understand that the owners of a promising startup do not want to give away their company (and idea) for a pittance. Therefore, requesting a ten percent share at the initial stage makes perfect economic sense. That is, both founders and investors should share the same values and speak the same language.
Soft Skills
Many difficulties a startup experiences in the first year of its operation are related to the lack of so-called soft skills. The poor personnel policy is one of the main reasons for a project’s failure. Therefore, startup owners should be able to put in place a corporate policy, on which the success of the entire project will ultimately depend.
Experienced entrepreneurs are well aware that lack of experience and wrong actions can undermine any promising project. After finding an investor, your next most challenging task is to understand who this work is done for and why. If you can answer this question, all other difficulties can be solved easily.
Conclusion
Research data and experts say that any startup has little chances of success. However, if you save money, choose proper investors, conduct a sound personnel policy, and ensure excellent product quality, you stand a good chance of succeeding. You should not expect all your difficulties to disappear after the first year of operation, either.
At later stages, the risks include failure to achieve estimated profits and key employees getting disappointed in the project. To prevent that from happening, startup owners should continually learn from all the failures that may happen along the way.
