16 Entrepreneurs Share 16 Reasons Startups Fail
The following are the top results from a survey of entrepreneurs on the topic of startup failure, provided by the Young Entrepreneur Council (YEC),an invite-only organization comprised of the world's most promising young entrepreneurs.
If you’ve been paying attention at all, you know plenty of startups fail. The numbers range wildly depending on industry, with some numbers pegging tech startup failure at a staggering 90 percent. According to Statistics Brain, by year five, more than half of all new companies have gone under. By year 10, about 71 percent of new companies are dearly departed.
Why do so many young companies fail? There are, of course, the big reasons like inexperienced management, lack of funding, and a tough economy. However, these aren’t the only reasons fledgling companies fail. There are plenty of overlooked reasons, from company culture and premature scaling, to bad marketing and squabbling founders.
I talked to 16 entrepreneurs and company founders about the most common, yet overlooked, reasons companies go under:
1. They Charge too Little
Many founders put themselves in their customers' shoes when thinking about price, instead of considering the value their product or service brings to their clients.
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2. They Rush to Scale
Scaling before your company is ready is a recipe for disaster. Before scaling, you need to find a viable business model that allows you to acquire customers for less than their lifetime value. So, before scaling, build your plan, get your systems in place, control your cash burn, create meaningful milestones and plan for cash-flow positive. That’s the foundation to successfully scale.
-David Ehrenberg, Early Growth Financial Services
3. They Have No Real Sense of Planned Urgency
When a team isn't working with a real sense of urgency, outcomes that need to take a few months can end up taking six, nine or 12 months to complete. Having urgency in your business gives you a lot of momentum in the first few months of a new business. From day one, instill urgency in yourself and your team.
4. They Don't Understand Cash Flow Analysis
Cash flow is very hard to understand -- especially for entrepreneurs with no formal accounting training. Many entrepreneurs simply overlook accounting and understanding the difference between revenue recognition and cash flow. You can have all the sales in the world, but if collecting payment or cash flow is not efficient, you might find your company upside down.
-Tim McHugh, Saddleback Educational
5. Their Co-Founders Don't Agree Upfront
Most companies fail because the founders assumed they were in agreement over fundamental things like whether it's a lifestyle business or one they want to take to IPO. Are they interested in just making money, or is making a difference equally important? If the foundations of a founder relationship are not right, the cracks get bigger over time and the whole thing falls apart.
6. They Don't Account for Cash Flow Surprises
A promise of funding or even a signed contract isn't the same as money in the bank. A lot of newer companies don't account for changes in cash flow, which can lead to the whole company failing.
-Caitlin McCabe, Real Bullets Branding
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7. They Don't Have a Marketing Plan
Most people think companies fail because of lack of funding. The reality is that most companies fail from lack of marketing. Most people like to outline their sales forecasting but totally miss laying out a fully developed marketing plan.
-Roger Bryan, Enfusen Digital Marketing
8. They Lack Focus
Many entrepreneurs have a "grand vision" when they first start out. This vision frequently tempts us to divide our efforts; to move in multiple directions, developing and marketing multiple products and services right away. This is self sabotage. Avoid this by staying focused and disciplining yourself. Otherwise your risk of failing increases because new companies are capital constrained.
9. They Are Focused on Vanity Measurements
Many new companies focus on vanity measurements like how much money they raise, how many times they appear in the press, or their social media following. Ultimately, a company will not succeed if it's not making sales. Focusing on closing deals should be goal no. 1.
-Darrah Brustein, Network Under 40 / Finance Whiz Kids
10. They Get too Much Advice
New companies and especially new entrepreneurs can allow for too much input from others. These over-advised entrepreneurs can have a difficult time making decisions. While it is important to get input, it is even more important to know what information is valuable and when.
11. They Pursue Bad Ideas
I meet people all the time (often college kids) who are SO desperate to be entrepreneurs that they jump into it with any idea. Oftentimes, these ideas aren't solving any problem or improving anything. In other words, consumers won't want them and the companies will fail. Entrepreneurship isn't glamorous. And it certainly isn't pleasant for founders whose business ideas aren't solid.
12. They Don't Do Their Research
A lot of new companies fail due to a lack of competitive research. Understanding the competition helps you price your product and services appropriately and market the differentiating aspects of your business. It also helps you understand and avoid previous failures of your competitors, so that you can focus on increasing the probability of your initiatives succeeding.
13. They Don't Focus on Culture
Some entrepreneurs get too caught up in being the CEO of three people. They are excited about their project, their vision, and forget that they need to cultivate an environment where people want to work. If you don't create a strong company culture -- a place where employees feel valuable, successful and genuinely engaged -- then your company suffers from high turnover and lack of productivity.
14. They Quit too Soon
How many overnight successes have you heard of? Most successful companies I know went through a lot of ups and downs and pivoted on something (product, market, team) before they became successful. Entrepreneurship is not easy and requires a special level of persistence.
15. They Can't Manage Well
I think one of the big things missing in many startups/small businesses is the role of each individual as a managing member of the company. Many small businesses start with one person leading the team. It's very hard to grow with one person managing everything. Having your employees be part of the management team is extremely important for growth and avoids failure in processes, systems, etc.
-Pablo Palatnik, ShadesDaddy.com
16. They Have Ineffective Branding
Branding is one of the most important aspects at the beginning of a new company. Quickly and clearly defining who and what you are as an organization is crucial in any competitive marketplace.
-Parker Powers, Millionaire Network
About Ilya Pozin:
Serial entrepreneur, writer and investor. Founder of Pluto.TV, Open Me, and Ciplex. Writer for Forbes and Inc. Husband 1x, father 2x, entrepreneur 3x. Follow Ilya below to stay up-to-date.
Main image courtesy of Black Glenn, Flickr
V.P. of Operations and sales
8 年As a business owner all apply
Experienced Financial and Corporate Professional
8 年Starting a company straight out of College is like going into the NBA out of highschool. Their is always the Lebron's that are ready, but the large majority of people would be best to stay in school and learn their trade. Most College grads would be best to work for at least 4 to 5 years and learn the good and the bad form experienced people above them. Then if they have a great idea, they are much better suited to taking the leap.
Grand Metropolitan
10 年Its very popular and chic to "do a startup" today. It sure beats getting a real job. But most entrepreneurs are simply ill-equipped to run their own show for the above reasons and many more.
CEO at RedCat Devices
10 年Interesting article but I suppose it covers more or less 10% of the reasons why startups fail....