Reasons why startups fail

4 Common Causes behind Start-Up Failure

Now more than ever, youngsters are choosing to abandon the long-going tradition of 8-hour workdays and are opting to work for themselves. Indeed, starting your own venture has a charm of its own. From exercising complete creative control, enjoying flexible work hours and increased authority, the benefits of being your own boss are endless. While an innovative proposal may get you started on your entrepreneurial journey, it takes much more than just an idea to keep you going. Paul Haarman said, lack of funding and investment, poor business strategy, and improper allocation of material or financial resources are all examples of reasons why newly launched brands fail. A few reasons why start-ups usually run out of steam are mentioned below:

 

Lack of Market Demand

 

The success of a start-up depends directly on the market need for the product or service that your company is providing. No market means no customers leading to no cash. Satisfying an existing demand is much easier than creating one. Thus, the secret to growth lies in doing a thorough prior investigation of the market you’re setting foot into. Assess the various products competitor brands are selling, their attributes, and recognize the unmet needs in the market. Based on the fact of Paul Haarman’s evaluation, develop a product or a service that bridges this gap and provides a solution to the problems of your target audience. Nearly 42% of small businesses eventually file for bankruptcy due to a severe lack of market demand.

Insufficient Financial Resources

 

Lack of capital resources is the second most common reason why start-ups fail. More often than you think, business owners underestimate the amount of cash needed to keep operations running. Funding the payroll, vendor payments, equipment, maintenance, rent, electricity, and other utilities add up to a significant amount. Financial trouble can also be caused when business owners miss the mark on pricing products adequately. Sometimes in an attempt to boost sales and attract customers, entrepreneurs price their products much lower than their competition. While this tactic encourages sales, it doesn’t generate enough revenue to keep the company afloat. The key is never to let the cash out-flow of your business exceed the cash in-flow.

Inadequate Business Plan

 

No organization can thrive without purpose, direction, and control. A solid business plan is like a foolproof guideline that directs the company and its employees toward the ultimate goal. A business plan is vital for many reasons:

 

  • The plan thoroughly explains objectives and targets while distributing responsibilities amongst the workforce to ensure efficient and timely delivery of tasks. Without it, the team is left wondering what they have to do and why.
  • The plan sets realistic deadlines to accomplish desired targets. Unachievable deadlines can place urgency on delivering results and cause workers to compromise on the quality of the results.
  • The plan imposes a strict budget and monitors cash flow. Inability to adhere to the set financial targets and making decisions on the fly is another reason why start-ups fail.

 

Poor Marketing

 

Marketing is perhaps one of the most challenging aspects of a start-up. As a newly launched business, you have to compete with a myriad well-established brands and force your way up to the top. Companies often undermine the importance of marketing during the initial launch stages. Physical and digital marketing are critical to reaching out to your target audience and spreading the word about your brand. Only if consumers know what you have to offer and how it is different from the options already available in the market will they invest in your product.

 

Paul Haarman observed many business owners often miscalculate a company’s marketing needs in terms of capital required, prospect reach, and accurate conversion-ratio projections. To compensate for the lack of funds, the company then has to redirect cash from other departments, which causes them to stray from their budget and strains their financial goals.

 

Conclusion:

 

Nearly 20% of all start-ups fail within their initial stages. While this percentage can be quite intimidating, know that this doesn’t necessarily have to be true in your case. With thorough research, detailed planning, practical strategies, and wise decision-making, launching a start-up can be made a lot more seamless.

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