A company that is still in its initial stage of business is known as a start-up. They generally work the same as any other company, but as opposed to trying to replicate and improve what has been done before, a start-up typically tries to bring a product or service to the table that is original and different to what has previously been achieved in the sector. This can help to ensure the start-up is attractive in the market that it is trying to enter.
But, starting a company can be a difficult endeavour and a stressful journey. You can never be certain of the longevity and success of the start-up and, due to being new on the block, the competition will be extra tough to stay afloat.
10 Reasons Why Start-Ups Fail
Here are some of the common reasons why start-ups fail in the US, from not properly using instant loans and funding to bad employee and stakeholder communication:
1. No Market
A start-up may have a great idea for a product or service to bring to market, but whilst there is value in entering and trying to thrive in a niche market, too small a market may actually prevent a company from becoming large enough to survive.
The wrong team will strangle any company and make it inescapably difficult to succeed. Especially in a start-up, passion is critical to get the company off the ground – starting out will mean competing with those in the market you are trying to enter and this will mean long work hours and a stressful environment. This will make the risk of burning out high, and a lack of passion may cause a start-up to cut their losses and drop out under such conditions.
3. Lack of Funds
Start-ups usually don’t generate profits or even revenue for a few years after being founded, so it is likely that a company will fail to raise new capital unless they can get off to a successful start. Funding for start-up companies is key with core functions of the company as well as paying stakeholders a key tenet of any successful company. Furthermore, if the company in question is in a major city like London or Manchester, some costs will be more expensive, requiring more extensive funding. For example, IT support services in London will be more expensive than in a smaller town and thus, funding will need to account for this.
4. Disharmony Amongst Teams and Investors
A start-up has several cogs in the mechanics of its team – there are the investors, founders and employees. In order to satisfy the investors, the founders and employees are under pressure to produce good results.
When things go bad with the board or investors, things can get ugly pretty quickly.
5. Wrong Timing
When setting up a start-up – you should make sure you check first why people haven’t had this idea before, why is now the time to introduce it?
If this question isn’t addressed and inadequate market research is done in the process, the start-up may launch their service or product at the wrong time causing it to crash and burn.
6. Issues Pricing Up
Once a start-up has a service or product to market, it’s time to price up. But pricing can be difficult for a start-up – pricing needs to be high enough to eventually cover costs, but low enough to bring in customers.
7. Legal Challenges
A start-up may evolve from a simple and effective idea, but then enter a world of legal complexities that can ultimately prevent it from getting off the ground.
8. A Flawed Business Model
A flawed business model will prevent a start-up from productively evolving. It’s important to not stay wedded to a single ineffective channel and fail to be innovative and find ways to make money – this will leave founders unable to capitalise and investors dissatisfied.
9. Being Outcompeted
Finally, despite having a good idea, business model and a team, a start-up may still be outcompeted by others in the market. Although it would be unhealthy to focus too heavily on the competition, ignoring it would be a bad idea.
10. Lack of Planning
Any business will fail without proper planning in place. But for startups, detailed planning is particularly crucial. Start-ups often don’t take into consideration long-term goals while adapting to short-term ones. Start-ups have to think on their feet while being decisive (which can be a hard balance).
Any good start-up needs to keep its fingers on the pulse at all times, and work to succeed where others fail to become the top dog in their market.