90% of Start-Ups Fail, Which are You, the 9 or the 1?

9 out of 10 new businesses stop trading. That’s too many. 

This article includes advice, quotes and the most common reasons start-up fail, because we want to make a change. Become the 1, not the 9…

90% of new businesses WILL fail…

….and given that most of you (reading this) are attached to a start-up, that means 9 out of 10 of YOU will be out of a job.  

(Sorry people, it’s the numbers fault, not mine!)

Understanding the high chance of failure is something worth reflecting on. Some of you may have already started a business and failed, others might be in it for the first time and the rest of you will still be pondering ‘the plunge’. 

Whatever happens, and however scary the 90% chance of failure is, nothing was ever achieved without taking the terrifying first step. For that alone, you all deserve massive respect (virtual fist bump). 

I work for a start-up too. In fact, the reason I’m writing this post is because I work for a start-up that deals with lots of other start-ups. We’re an agency (as you probably guessed), and that means we talk to tons of new companies. 

Business is good (don’t worry, we’re not resting on our laurels) allowing us to turn potential clients away every week.  

(We offer advice to anyone who approaches us, but not everyone is suitable for our services)

This experience of diving deep into new products, strategies and business aims, has allowed me to see the good, the bad and the ugly of the start-up world. And that’s what I’m going to bring to this post…

…snippets and memorable lines from meeting potential clients.  

Hopefully, this will motivate you to keep the dream alive, and you’ll learn a few things from the mistakes of others. 

I’m going to kick this thing off by arranging these real-world quotes (some might not be word-for-word, and no names are attached, I don’t want to embarrass anyone!) under the sub-headings of the top reasons for start-up failure (source: Statista). 

42% of Start-Up Failures: No Market Need

‘No market need’ is a very broad term and can mean a whole bunch of different things. It doesn’t necessarily mean there was ‘no market need’, it may be that the start-up identified a need but weren’t able to solve it, or the there was a need, but it just wasn’t great enough. 

Whatever the case, any business who does not understand and constantly engage with their market is surely doomed to fail. 

• ‘We don’t need to do market research, I’m an expert, and to be honest, I haven’t got time.’
• ‘How am I supposed to talk to the market when I’ve got to develop a product, manage the business’s social media profiles and keep my partner happy? It’s impossible. The market won’t love my brand because we’ve had a chat anyway!’ 
• ‘I discovered that the market had a big need, so I created a product for it. What else do you want?’
• ‘My cousin is in the industry, and he says that he needs a product like mine. That’s a market need, isn’t it?’

• ‘My product won’t be ready until the market says so.’
• ‘Everything I’ve done is based on what customers want. They told me what they had problems with, so I went away and developed a service that eliminated it. Then I came back and showed them it, and they told me how they’d like it to improve, and I did that too.’
• ‘I focus on the ‘no’s’. People who buy are great, but those who don’t, they’re the really valuable ones. I have to know why they said ‘no’, so I can make everything better.’ 

W. Edwards Deming perfectly sums up the need for market research, “Without data you’re just another person with an opinion.”

29% of Start-Up Failures: Ran out of Cash 

Money drives businesses, and yet, 29% of you were not paying close enough attention to it. 

Running out of cash can be a clear indication that your business isn’t viable, but it may also be a result of poor spending, complacency and naivety. 

• ‘I watch profit and loss, not cash.’
• ‘The only reason my product isn’t selling is because I’m not spending enough on advertising. That’s why I want to 3x my spend.’
• ‘It’s fine, I know my debtors will pay. It doesn’t matter if their payment is delayed by another 30 days.’
• ‘Why do I need a cash cushion? I can spend all my money on stock, in the knowledge that my product will keep on selling.’
• ‘What? Of course, my sales forecasts are realistic!’

• ‘One of the first things I did was build a cash reserve. It’s covered my back a few times when something unexpected happened out of my control.’
• ‘If somebody owes the business money, it has to be paid on time.’
• ‘I always kept my break-even number in mind when I started out. I never lost focus of it, and didn’t allow myself to relax until I hit it.’
• ‘I never lose sight of cashflow. Who knows when a supplier will raise his prices, I need more staff, or something comes out of the blue. Things break and I’m prepared for it.’

A quote from Michael Dell, the founder of Dell Computers explains how important cash is, “We were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when in fact we were running out of gas.”

23% of Start-Up Failures: Not the Right Team 

People are complex creatures, which makes staffing one of the toughest things to get right. That explains why 23% of failed start-ups did the dirty by blaming it on their team!

Hiring, delegating, motivation and firing staff cannot be avoided if you’re planning to scale. Each and every step in an employee’s journey can have enormous knock-on effects for the business as a whole, so it’s crucial you get them right. 

• ‘I hired my brother-in-law because he was bored.’
• ‘Joe is an amazing guy to have around, that’s why I had to employ him. He’s funny, confident and always lifts morale in the office. Culture is important to my business, so if he’s spent three hours watching a tv show and laughing with the team about it, it’s good for us.’ 
• ‘I had the cash to take on more staff, so I did. Simple.’
• ‘Joan is a lovely woman. She takes in stray cats and looks after them, they’ll starve to death if I fire her. That’s why I can’t.’

• ‘I only hire someone when I have work that requires a full or part time team member. Employing has to benefit the company. It doesn’t matter how good the cash situation is.’
• ‘When I invest in people, they return the faith. Everyone wants to better themselves, and I make sure my employees are able to do that.’
• ‘If somebody leaves my company, before hiring a replacement, I make it my job to discover why. When I know that, I can improve the business.’
• ‘Before hiring, I think hard about whether I really need somebody. Could I adapt my role? Could my existing team share the responsibility? What effect would it have on my staff?’

A short and sweet quote from Lawrence Bossidy, former CEO of AlliedSignal captures the importance of building a strong team, “You bet on people, not strategies.” 

19% of Start Up Failures: Outcompeted

Competition can come from anywhere, and businesses have to be ready to adapt. 

If there is a market need for something, you probably won’t be the only one to spot it. As a start-up you won’t just be competing with similar sized businesses, big brands are always looking to expand with new products, so be prepared. 

• ‘I ignore my competitors. My business is better, my product is better and my customers won’t leave. It doesn’t matter what they do.’
• ‘I changed my entire business strategy because it looked like my competitors were getting success from a new strategy.’
• ‘I checked out the competition when they first came to market. Their product sucked, so I didn’t think I’d need to worry about them again.’
• ‘They’re better than me. There’s nothing I can about it.’

• ‘I always pay close attention to the competition, and that means regularly buying their products. I know what they’ve got and I know how to compete with it.’ 
• ‘Nothing motivates me more than a competitor who’s upped their game. It forces me to up mine too. If they get one step ahead, you can be sure I’m gonna claw it back.’
• ‘I have to be the best. If I wasn’t number one, I wouldn’t even bother.’
•  ‘I always need to have a competitive advantage, otherwise I wouldn’t even bother competing.’

Competition should inspire your business to work harder, not wilt under the pressure. This quote from Ovid should give you the geeing up you need, “A horse never runs so fast as when he has other horses to catch up and outpace.” 

Conclusion

Business is not meant to be easy. 

Those people who do the right things, put their hands in the dirt and get on are far more likely to succeed. 

We speak to clients (all the time) who talk-the-talk, say all the right things and act like they are always putting the hard-work in, but when it comes to the crunch, they fail because they don’t follow up on it. 

I’m a consummate believer in quality and consistency. Quality in strategy, execution and research, and consistency in NEVER LETTING IT DROP!

If you are able to marry the two together, you’ll win sooner or later. 

What do you think about the start-up quotes? Do any of them remind you of yourself, or somebody you know? Leave a comment, let us know what you think!

Learn more about what it means to be an Entrepreneur with our 10 Things Only Entrepreneurs Will Understand article.