Top Reasons Start-ups Fail (And how you can avoid them)
Egla Kerubo  |  Jan 8, 2020  | 
Cytonn Investments
Egla Kerubo  |  Jan 8, 2020  |  Cytonn Investments

Starting a business is an interesting process. You are excited but also apprehensive. You’ve made countless sacrifices to get to this point. You have dreamt about the future – what your business could become – and this has kept you going even when you wanted to give up. Most certainly, you have invested your time, blood, sweat and tears, and now this is it. You are about to launch.

The future looks bright. But is it?

Research shows that up to 75% of startups flop in their first year. This means you are three times more likely to fail than succeed. These are terrible odds, considering that your future lies in the balance. Should you risk it? Definitely! Entrepreneurship can be very rewarding, and if you feel it is your path, by all means, pursue it. But before you do, learn from those who were unsuccessful before you and avoid the mistakes they made. These are the top reasons why startups fail in their first year:

  1. Flawed business model

Entrepreneurs sometimes get lost in the glitz of their business ideas and forget to ask the all-important question: “Is there a market for this?” Your concept might seem exciting, unique and cool but if it is not solving a big enough need, it will be unsustainable in the long run. The lower the “pain point” – the discomfort that is caused by lack of any need – the more likely it is that you will fail.

  1. Lack of flexibility

You have a great business plan and you will execute it even if it kills you. The problem is, the market could have different ideas. If you are not flexible enough to accommodate this, it might be over for you. Listen to what your customers want and work towards providing that. If you don’t believe me, just look at Netflix, IBM, Nokia and Apple. They adapted according to consumer wants and they thrived.

  1. Leadership and management issues

It is very sad when a business with so much potential goes down because it did not have the right team running it. Most often, founders have a difficult time letting go of the reins and appointing other leaders, even when the firm grows and exceeds their expertise. They fail as a result. Other times, it’s because of not hiring the right people. Sure, employing your friends and family can be cheaper and more comforting, but you risk losing out on professionalism, talent and competence.

  1. Money problems

You started a business but did not think through all the financial implications. You didn’t anticipate it would take this long to make a profit. Your personal assets are all tied up in maintaining overhead costs and you don’t have a backup plan. You are in heavy debt. You cannot afford new inventory. Lenders are on your case. Sooner or later, you will be forced to close shop. Unfortunately, this scenario plays itself out a lot. To avoid being part of this depressing majority, figure out your finances long before you launch. Keep your estimated spending on the higher side and have contingency plans for different scenarios.

Overall, the reason most businesses fail is a lack of research. Do not rush into things. It would be better to delay opening because you are digging up information than going in head first and hitting a wall in the first few months. It cannot be said too many times; research, research, research!