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It has been estimated that as many as 90% of startups fail within the first five years globally. Yet, every year new and experienced entrepreneurs alike put their heart and soul into starting a new business venture. As a serial entrepreneur and investor, I have built up several businesses in recent years. While some failed, a couple of them succeeded and became multi-million dollar companies with offices on a global scale.
Being an entrepreneur is often seen through rose-tinted glasses, but the reality is that it requires hard work, perseverance and grit. You can expect to work long hours, and work-life balance can be challenging. You have to focus on designing the product, acquiring new customers, doing the marketing and taking care of the finances. In fact, it can feel overwhelming how many hats you need to wear. Also, there is no guarantee of success.
So why do so many startups fail? While many different factors can cause startup to fail, here are just a few of the most important reasons:
Related: 5 Reasons Startups Fail (And Why Each Is Preventable)
5 main reasons why startups fail
One of the main reasons startups fail is that they run out of cash or are unable to raise the capital they need. There can be many factors that contribute to this. They may struggle to attract investors and get them on board with their idea, or perhaps they struggle to get the clients and customers they need to bring in the money.
Startups often do not go as planned with snags along the way, which can cost money. So, unless you have the cash flow, you’re going to struggle to get the work done so that the product can be moved into production and you can start making money. Moreover, poor management of costs can often make the difference between success and failure.
No market need:
Maybe you feel like your idea is great and solves a really important problem, but if it doesn’t fill a market need, you’re going to struggle to get interested buyers. This could mean that your product or service doesn’t fill a gap in the market, or that there isn’t a market for the gap you’re trying to fill.
Sometimes people try to get around this by marketing a product to everyone, but this is often too broad, and you run the risk of not being able to create an audience around the product or service. Even if you have a great business idea and it has a market need, it could still be a case of bad timing. If you’re too early, the market may not be ready for your business—and if you’re too late, the market may be saturated, or the hype may be over.
Driven out by competition:
Awareness of competition and the overall market is essential if you want to emerge as a leader as competition can be fierce when it comes to business. However, many entrepreneurs do not spend the necessary time and effort to assess and learn from the competition, or they do not take the time to develop a unique value proposition to help their brand stand out from the rest. Around 20% of startups fail due to being outcompeted.
Having a flawed business model:
Business models are critical to the success of a startup, allowing you to scale and become profitable. It can help give a startup a competitive edge and help them understand their own business better. It can also lead to an established financial plan to increase cash flow and profitability. However, one of the main reasons startups fail is that founders have a flawed business model, and as such cannot scale or sustain the business.
Lack of passion or burnout:
Starting a new business can throw work-life balance out of whack. You may work long hours or weekends just to keep up to date, but you risk burnout. Unfortunately, we live in a world where working to extremes earns you a badge of honor, but it can have a negative impact on your health, home life and work. Many entrepreneurs lack the tools to handle the pressures of running a startup and can quickly find themselves spiraling into burnout if they’re not careful.
Related: 5 Tips to Prevent Startup Errors
How can entrepreneurs set themselves up for success?
As an entrepreneur myself, I know how challenging it can be to get a new business off the ground and make money. That’s why we at VentureRock, a digital venture capital platform and ecosystem of founders, backers and builders building the next generation of global technology companies, set up a 72-step program to help accelerate startups and reduce startup failure rates.
While there is no miracle formula for success, there are some key points you can focus on to put yourself on the right track.
Remember the “why:”
This tip seems so simple, but it’s crucial – and that’s remembering the “why.” This may be why you are doing this or why you feel your business is important. It can be your anchor in maintaining a clear vision of what you want to achieve and what problem you are working to solve in the market. It also reminds you of your passion and provides a starting point for laying a solid foundation for your business and establishing core values.
If you focus exclusively on selling products and making money, there is little chance that you will succeed in the long term, and most people will give up. This is where the firm’s approach plays an important role, working with ventures from seed to scale and guiding entrepreneurs towards long-term success.
Play to your strengths:
Playing to your strengths can be critical in early-stage startups, but they can often be your secret sauce and what makes your business yours. We all have unique qualities and strengths, and they can help set your company apart from others. Look for ways to exploit your strengths and use them to the best of your ability. It’s important to be true to yourself and make sure that what you do is consistent with your sense of happiness, purpose and meaning.
Get support and build a network:
As an entrepreneur myself, I am passionate about helping entrepreneurs succeed and using my experience to reduce the failure rate of startups. Getting the support you need early on can be key, whether that’s joining groups or attending masterclasses with like-minded people to build a network. I’m a big believer in working closely with people who are already where you want to be, so working with a mentor can be incredibly helpful.
Related: 3 Ways to Avoid the Pain of Boot Failures
Being an entrepreneur often means you have to take a risk, but it’s better to go for it than regret not trying later in life. You never know the outcome of your efforts until you do, and while there may be obstacles along the way, believing in yourself can get you far.