In spite of the COVID-19 pandemic, more people are starting their own businesses than ever before. This is a testament to the American spirit of entrepreneurship, and the desire to be one’s, own boss. However, it’s important to remember that three out of every five small businesses fail.
According to a Wilbur Labs poll of over 150 startups, 70% face potential business failure, and 66% will fail in less than 25 months. Even though the IRS was receiving applications for new enterprises — when they reached their peak during the summer of 2020 – 77 percent said that they had “faced potential failure” as a result of the pandemic.
So what is the biggest reason why startups fail? We took a look at some of the most common reasons and put together this list for you.
Reasons Why Startup Failed
There are many reasons why startups failed, and every startup is different and has different reasons for why they failed. Some may have bad investors or conflict with co-founders, while others may have made a product that no one wanted or needed.
26 Top Reasons Why Startups Fail
We’ve compiled a list of the 26 most common reasons why startups fail, based on our research.
1. Ran Out of Money
A lot of startups fail because they ran out of money. If you don’t have a good handle on your finances, marketing, and other aspects of running a business, then your startup will likely fail. Make sure you have a solid plan in place and know what you’re doing before you start your business.
2. Bad Investors
Investors can make or break a startup. If you have bad investors, they may not give you the funding you need to grow your business. They may also be difficult to work with and may not understand your vision. Make sure you choose your investors carefully and don’t let them control your company.
3. Bad Board Members
Your board members are there to help you make difficult decisions and offer advice. However, if they are not on the same page as you, it can be difficult to get things done. Make sure you select people who understand your vision and who will support you in your decisions. Otherwise, you’ll find yourself constantly fighting with them.
4. Greedy Investors
Investors are looking to make a return on their investment. That’s why they invest in startups. However, some investors can be very greedy and may try to take advantage of you. They may try to control your company or take more money out of it than they should. Be careful when selecting investors and make sure you know what you’re getting yourself into.
5. Conflict With Co-Founders
If you’re starting a business with someone else, it’s important that you get along. If you don’t, it will be difficult to make decisions and move forward. Make sure you discuss your goals and values with your co-founder before you start the business. Otherwise, you may find yourself at odds with them down the road.
6. The Team
You are only as strong as your team. If you have a group of people who are not working well together, it will be difficult to get anything done. Make sure you take the time to build a strong team that is able to work together and support each other. Otherwise, you’ll find yourself struggling to get things done.
7. No Financing or Investor Interest
Another reason why startups fail is that they can’t get funding from investors or they run out of money. If you don’t have a solid business plan and financial backing, your startup will likely not make it. Make sure you have a solid plan in place and know what you’re doing before you start your business.
8. No Business Plan
Many startups don’t have a solid business plan or model in place. This is usually because the founders are passionate about their product or idea but haven’t thought about how to turn it into a viable business. Without a business plan, it’s very difficult to get funding from investors or loans from banks. Make sure you have a solid plan in place and know what you’re doing before you start your business.
9. Not Being Able to Execute
Another reason why startups fail is that they can’t execute their plans. This could be because they don’t have the right team in place, or because they’re not able to scale their business quickly enough. If you can’t execute your plans, your startup will likely not make it. Make sure you have a solid plan in place and know what you’re doing before you start your business.
Make sure you have a clear idea of how your business will operate before you start it.
10. Lack of Market Need
This is the most common reason why startups fail. If you create a product or service that no one wants or needs, then your business will not be successful. Make sure that you do your research and understand your target market before you start your business.
11. Poor Management
Another common reason for startup failure is poor management. If you don’t have a good handle on your finances, marketing, and other aspects of running a business, then your startup will likely fail. Make sure you have a solid plan in place and know what you’re doing before you start your business.
12. Lost Focus
Startups often fail because they try to do too many things at once. Make sure you have a clear vision for what you want your business to be and stick to it. Don’t try to be everything to everyone.
13. Unclear Value Proposition
Your startup needs to offer something of value to customers. If you’re not clear on what your business is offering, then customers will likely be confused and won’t use your product or service. Make sure you have a clear and concise value proposition that explains what your business does and why customers should use it.
14. Ignored Customer Feedback
Customers are the lifeblood of any business, so it’s important to listen to their feedback. If you’re not paying attention to what customers want or need, then your business is likely to fail. Make sure you’re constantly collecting customer feedback and using it to improve your product or service.
Many startups are founded by people who have never started a business before. While it’s possible to be successful without any experience, it’s more difficult. Make sure you learn as much as you can about starting and running a business before you launch your startup.
16. Bad Location
The location of your startup can make or break your business. If you’re in an area with a lot of foot traffic, you’ll likely get more customers than if you’re in a remote location. Make sure you choose a location for your business that makes sense for what you’re selling.
17. Not Understanding The Market
Startups often fail because they don’t understand their target market. Make sure you research your target market thoroughly before starting your business.
18. Poor Marketing
Many startups fail because they don’t do a good job of marketing their products or services. Make sure you have a strong marketing plan in place and that you’re promoting your business to the right people.
19. Failure to Pivot
Startups often fail because they don’t pivot when things aren’t going well. Make sure you’re willing to change your business model if it’s not working.
20. Lack of Passion
Startups often fail because the founders aren’t passionate about their business. Make sure you’re starting a business that you’re truly passionate about.
21. Not Being Able to Scale
Startups often fail because they can’t scale their businesses. Make sure you have a plan in place for how you’ll grow your business as it expands.
22. Pricing/Cost Issues
Startups often fail because they don’t price their products or services correctly. Make sure you understand your costs and pricing before starting your business.
23. Was Outcompeted
In some cases, startups fail because they were simply outcompeted by other businesses. Make sure you have a unique selling proposition that sets your business apart from the competition.
24. Too Much Debt
Some startups take on too much debt early on and then can’t repay it. This can ruin your credit and make it difficult to get funding in the future. Make sure you only borrow what you need and can afford to repay.
25. Legal Challenges
Legal challenges can be a death knell for startups. Make sure you understand the laws and regulations that apply to your business before you start.
Entrepreneurship is a difficult job. Make sure you take time off and have people to lean on if you run into burnout. Entrepreneurship isn’t a race; it’s a long-distance marathon.
How To Prevent Startup Failure
Now that we’ve covered some of the main reasons why startups fail, let’s take a look at how you can prevent your startup from failing.
There are a few key things you can do to reduce the chances of failure:
– Do Market Research
Before you set out to start your business, you should do some market research. This will help you determine whether or not there is a need for your product or service and if people are willing to pay for it.
– Create a Strong Business Plan
A business plan is a road map that will help you get from point A to point B. It will also help you raise money from investors and track your progress over time.
– Have a Compelling Vision
People need to believe in what you’re doing in order for them to invest their time and money in your business. Having a compelling vision is essential to achieving this.
– Make Sure You Have the Right Team in Place
As the saying goes, “There’s no I in team.” In order for your startup to be successful, you need to surround yourself with people who are passionate about what you’re doing and who have the skills and experience to help you achieve your goals.
Surround yourself with talented and hardworking employees. Take the time to carefully screen candidates and find the best fit for your team.
– Create a Killer Product or Service
This one is pretty self-explanatory. If you don’t have a great product or service, people are not going to want to buy it.
– Create a Stellar Marketing Plan
You need to have an effective marketing strategy in order to reach your target market and promote your products or services.
– Be Passionate About What You’re Doing
If you’re not passionate about what you’re doing, why should anyone else be? Your passion will be evident to customers, employees, and investors alike, and it will be a key driver in your success.
– Be Willing to Sacrifice
Starting a business takes a lot of hard work and dedication. Be prepared to sacrifice your personal life, sleep, and social life in order to make your business successful.
– Be Coachable
No one knows everything, so be open to learning from others. Being coachable will help you take your business to the next level.
– Be Passionate
Passion is what will drive you to succeed when things get tough. If you’re not passionate about your business, it will be very difficult to persevere through the challenges you’ll face.
– Raise Enough Money
You need to make sure you have enough money to sustain yourself and your business during the early stages when revenue is low.
– Have a Support Network
Having a supportive network of family, friends, and mentors is critical for any entrepreneur. These people can offer advice, resources, and emotional support.
– Find the Right Location
The location of your business can make or break your success. Make sure to choose a location that is convenient for your customers and has the necessary infrastructure.
The Bottom Line
There are many reasons why startups fail, but these are some of the most common. Avoid these pitfalls and increase your chances of success. Do your research, put together a solid team, and don’t be afraid to ask for help when you need it. Most importantly, remember that failure is part of the journey to success.
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