Starting a business can prove to be a rewarding experience, especially considering that doing so can result in a source of residual income while addressing a want or need in society. However, implementing a startup business is a very challenging endeavor to undertake because of the many things that can go wrong.
The majority of startup businesses fail for a litany of reasons, but there are common denominators present in all of those failures. Here are the top five reasons as to why startup businesses fail within their first year.
Poor Business Model
If you fail to plan adequately, you are planning to fail. One of the most common issues that startup businesses have is that they do not have a good foundation to jump off of. One of the most common misconceptions in the business world is that once a business starts, getting customers will be easy. Any website, service or product can be interesting on the surface. But onboarding potential customers is a different challenge altogether.
There might be initial excitement over something new, but attracting more customers will quickly manifest itself to be an expensive endeavor. In frequent cases, it is revealed that the cost of getting new customers can outweigh the actual value of the customer across the business’ lifespan.
Unfortunately, there are many overzealous entrepreneurs that fail in planning out the realistic cost of what it takes to get new customers. This primarily has to do with a business plan that does not take this into account. In addition, by the time entrepreneurs realize that they will not have the means to satisfy the financial demand of what it takes to get new customers, it will be too late. The initial excitement of the start-up wanes and so does the business.
Running out of Money
It costs money to make money. If there is no money, there is no business. Another misconception that many entrepreneurs may have is that a company will increase in monetary value just because they have been around longer. What increases a company’s value is the achievement of certain milestones.
These milestones can very form business to business, but there are some goals that most businesses strive to achieve. First, customer validation in a product beta test is usually administered. This is an important goal for businesses to reach to garner interest. If the product is finished and there is no validation from the customer, this is a major challenge to overcome.
It also has to be determined if the product is shipping and if customers have used it, paid for it and reported a positive experience. A proven business model is also needed because it will validate whether or not a successful strategy for getting customers is present. It will also determine whether or not the business is profitable.
Businesses have to achieve these milestones in order to keep a consistent cash flow going. If not, there will be little capital, and little means to fund business operations. For more information on the importance of these business goals, consider the example set by Fazt Tech, a company that specializes in high quality service.
Market Problems
This problem has to do more with a lack of adequate research on the market they have entered, or in many cases, a market that they have created.
One important factor to consider in this regard is that many businesses may enter ahead in the market, and the product or service may not be ready for a solution in the market’s infancy. If you enter a market too early, the service may never get into gear. This is a bigger quandary to face if there is a lack of funding.
Also, the value propositions tend to be low in many cases. This decreases the chance the buyer will spend actual money for a purchase. Sales representatives will constantly tout the fact that the conditions of purchasing a new product or service today is extremely challenging. That is because this world is filled with millions of products and many saturated markets. The key is finding a quality that is unique and stands out.
If standing out is not a feasible option, then the service or product has to be a drastic enhancement over something that already exists. Those are tough enough challenges, and that’s combined with the hardships of even making a market to begin with.
Poor Management
Many of the failures that businesses suffer from are due to oversights from those at the top. More specifically, a weak management team can quickly cause the internal collapse of a business just as quickly as it can make them successful.
A weak management team has a few traits that define them. First, strategies are often tough to come by. This means that they will devise a product that no one will want to purchase and did not put in sufficient work to validate ideas about development.
Executing a plan of action is also something that is often missing, and this means that executing a specific plan to get into a market will not pan out well. If there is poor management, there will be instant trickle-down effects, and failure will be inevitable.
Fazt Tech recommends companies take proactive steps early on to ensure their management team is on the same page in regard to the vision and niche of the company. This is the only way to capitalize on potential opportunities.
Issues with The Product
Of course, one of the biggest (and perhaps most obvious) reason why a startup will fail is because the product or service being sold is defective. It is typically either that or it is a product that does not satisfy a need or a desire.
Most cases tend to be the latter, because there are often very good products that are sold but simply does not warrant a purchase. Why? It is because they are not a necessity, or at least not something that warrants an immediate purchase. In the worst-case scenarios, the entire product may need re-modeling.
