Startups fail for a plethora of reasons, ranging from mismanagement of business resources to bad luck. In this article, we will discuss the most common avoidable causes of startup failure and how to avoid them.
1. Failing to Make a Business Plan
To stand any chance of success, every business needs to be based on a solid business plan. A business plan should help you and your team answer the following three questions.
What Problem is Your Product Addressing?
If you do not have a clear vision of what problem your startup is solving, then you’re likely developing a product that no one will want. Answering this question will help shape your startup around a core focus and hence allows you to build the most important features first.
Who Is Your Target Market?
If you don’t have a clear vision of who your market is, then the odds of your business succeeding are low. A great product marketed to the wrong audience won’t sell, regardless of how economically viable, user-friendly, intuitive, or cheap it is.
Where Will You Get Your Funding?
Without funding, even the best of products or ideas will not see the light of day. While bootstrapping is probably the most convenient way to go, it is not always practical. You may want to consider incubators or small business grants. Angel investors come also come in handy.
2. Hiring the Wrong People
Hiring on a budget is a tricky affair. You need to get good talent, but you can’t afford to hire the best. Many startups have folded after hiring the wrong people. Examples of ill-fitting employees range from unskilled friends to skilled but unmotivated workers, to people who you just can’t work beside.
If you’re not sure of how to identify the right people, consider taking a human resource course to get insights in hiring and managing an efficient workforce.
3. Mismanagement of Funds
Nearly every startup has a limited amount of money in the beginning. Like an airplane on the runway, if you don’t get your business airborne before your resources run out, it will crash. Perhaps very spectacularly.
This means that in the beginning, all your money should be focused on activities that directly contribute to your startup’s takeoff speed. After your startup is profitable enough to sustain itself, you can then start spending on the other non-essential things.
4. Being Too Rigid
Sticking rigidly to your vision works in many fields, but starting a business is not one of those. As an entrepreneur, you need to learn how to pivot when things fail to go as planned. If, for some reason, your current business plan doesn’t work out, change tact, and pivot to a new one.
What proves difficult for many startup founders is not finding a new idea; it is discarding the old plan and choosing to go with the new one. It’s worth noting that the new course of action doesn’t have to be similar to the old one. Nokia, for instance, once sold rubber boots. Fast forward a few decades. Do they still sell shoes?
The Next Big Thing
It seems that for a business to succeed, all it needs to do is survive its infancy. But it isn’t easy. Even in the best economic conditions, many businesses fail soon after they launch. Avoiding these mistakes will go a long way in helping your startup grow, and who knows, what it might become.