Why start-ups fail: 5 barriers to business success and how to overcome them
November 11 2022
In 2019, the Telegraph revealed that 20% of new ventures will fail within just 12 months of opening their doors, with that figure climbing to 60% within the first three years.
In fact, failure at the start-up phase is so widespread that many entrepreneurs have taken to writing a “failure post-mortem” to assess where they went wrong in the hopes that other aspiring entrepreneurs can avoid the same pitfalls.
New businesses fail for a variety of reasons but being aware of some of the most common setbacks is crucial for recognising the weak points in your own business model. Ignore them, and you risk becoming part of that growing 60%.
Cash flow woes
Without a cash flow you don’t have a business, and poor financial planning and management is one if the primary reasons so many start-ups fail.
A business in its infancy might appear profitable on paper, but it’s important to remember that money owed is not the same as money in the bank. Failing to account for the gap between delivery of your product and service and the receipt of actual payment can leave you in a financially risky situation.
Both a healthy cashflow and a firm grasp of costs incurred are needed to grow and scale your business or secure additional funding. Developing strict budgets and creating cash flow forecast will enable you to stay on top of your finances and plan for both the short and long-term.
Lack of vision
Without a clear vision in mind of where you and your company are heading from the very start, you risk losing motivation.
A clear vision also acts as a foundation for your entire business, allowing you to develop a strategy for the long-term that engages and unites your staff in what you are working towards and why.
Defining a mission statement isn’t simply stating what your vision is, but actively laying out the framework to achieving that vision, so you can establish clear goals and start to measure progress.
Poor branding and marketing
A strong brand identity is crucial, but so many start-ups completely neglect this aspect of their company altogether. Your brand is what communicates your values and is what will help you build trust and recognition, and effectively tap into your target customer base.
Though a strong brand identity is what will differentiate you from your competition, this is futile without a solid marketing strategy in place to ensure people actually know about your business. Without proper marketing, you might have the best product or service on the market, but your ability to generate leads, acquire clients and ultimately convert them into sales is going to be severely hampered.
Successful companies, no matter their size, understand the importance of both brand identity and marketing. Though start-ups often operate on tight, limited budgets, omitting or severely cutting your marketing budget is always to the detriment of your own business.
There are plenty of opportunities for small companies to market themselves without breaking the bank, and however you choose to do it, always have a strategy in place, and regularly measure your marketing efforts to track their effectiveness and ensure you are getting a good ROI.
Hiring the right team
In the early stages, having the right people can make or break your business. The hiring process can be an arduous one, more so when you have limited capital to spend on personnel, so ensuring you take a discerning approach to your first hires can save a lot of time and resource in the long-run.
Bringing in too many people too quickly can create problems – particularly if you don’t have the cash and income to sustain payroll. In the early days, it’s often better to have a small, dedicated team who understand the vision and direction of the business and can help you establish a positive working culture that will pay dividends in recruitment further down the line.
Failing to scale
The goal of every entrepreneur is to ultimately grow their business into something bigger and better, but growth that your business is not prepared for could be damaging if you don’t have the structure in place to support it. You may find your business is currently thriving, but don’t let this tempt you into jumping headfirst into scaling without any strategy or plan.
Take the opportunity while your business is still in its infancy to create the structures it needs to scale. By implementing the right procedures and systems in the early stages, you will avoid the headache of playing catch-up later on as your company expands, and without negatively impacting customer service and/or product delivery.
Navigating the many pitfalls of building a new business may seem like a daunting task, but resilience and a readiness to change tact when something is not working are hallmarks of a good entrepreneur. And finally – in the words of Winston Churchill – never, never, never give up.