With a 90% fail rate, it’s no wonder that very few startups actually make it past year two. But, given the entrepreneurial climate which has gripped the economy in recent years – mostly due to the saturated job markets and strong economy – there are more and more companies emerging to give it a go.
With that in mind, here are five of the most obvious reasons that a startup fails in the modern world. And, better yet, how you can work to avoid them.
1 – Cash is King
And some startups turn out to be peasants.
A harsh sentiment, but often the bitter truth behind many startup failures. They simply did not have the cash to keep going. Whether this is due to failing to secure strong investment from day one or a lack of sales during the life of the company, poor cash flow can hit hard and fast for any fledgeling company. So, keep your cash flow as strong as possible.
The fact is that many business owners fail to secure the cash flow needed to fund day-to-day operations and as such, they tend to crash quickly. The only way to avoid this is to, typically, start extremely small where cashflow is not a necessary prerequisite for operation. Of course, even in such a case there may come a day where operations have grown and there is no ‘rainy day fund’ to tide the company over when things aren’t necessarily going to plan.
2 – Rapid Expansion
Growing too big, too fast, can be as a good as a death warrant for some businesses. It may seem fantastic in the moment, but some early bird successes can quickly dwindle away and leave you overconfident in a changing market. Expanding rapidly to a new location, opening more shops, offices or even buying much more stock can be the result of this.
Then, the sales slow down and suddenly you have no need for so much stock, employees or whatever else you may have eagerly invested in. So, now you have too much to pay for and not enough sales to make it affordable, let alone profitable. Thus causing your startup to inevitably fail.
The fact is that expansion of any kind should be taken with extreme caution. Even a business that may not even be considered a startup should take pause, as economic and geographical factors can easily come in to play and cause expansion to fail. Expand, but do so slowly and with enough research to back up the move.
3 – Team Incompatibility
One of the biggest, if most surprising, reasons for startup failure in the modern world is simply team compatibility – or lack thereof. This isn’t necessarily just how well a team works together or whether or not they like each other. But, whether or not they have the right skills which complement each other. A team that gets along great but doesn’t have the necessary array of skills for the business can fail as easily as one that hates each other but does have the skills.
So, when building a startup team the whole process is a delicate kind of balancing act. Don’t just ask yourself, ‘will these people get along?’ Ask yourself, ‘will their skills boost one another and push this company to where it needs to be?’ Then ask yourself about their personalities.
Chemistry, skill sets and a little bit of pixie dust is ultimately the best ingredients for team success. Hard to achieve, but magic when you get it right.
4 – Poor Strategy
Poor or not strategy tends to be one of the biggest killers when it comes to the fledgeling startup. Someone who starts a business with no strategy is not only naive, but they tend to be shooting themselves in the foot quite severely.
The fact is that strategy, business plans and a way forward is the only way to ensure your startup has the right structure to succeed – whether you’re a tech start up or looking to move into the property management Manchester or commercial property management scene. If you plan for something, then failing to hit that mark can help you realise where you are going wrong and course correct before the issue grows too severe. Likewise, you can also track better successes and whether or not you may even have room for bigger ambitions.
All in all, a startup doesn’t succeed for many reasons, but some of the more obvious reasons are listed above and are very clear for you to avoid. Keep your eye on money, ensure your team chemistry and skills are complementary, don’t go too far and too fast, and ultimately have a strategy in place which supports business healthy business practice.