Top Reasons Why Small Business Startups Fail

You’ve got a great business plan. You’re full of vim and vinegar, and willing to plug in all the hours in the day to get your startup idea of the ground.

That’s all well and good, but with roughly 50% of all new businesses failing within their first year it’s simply crucial to have a robust understanding of what could potentially trip up your exciting startup venture – not least because a large number of businesses end up failing due to a staggeringly familiar host of problems.

Problems like these:

  • No plan, and therefore no focus. Too many entrepreneurs, especially those without previous business savvy, experience or education try and bumble their way through the formative days, weeks and months of their new business without a clear and concise plan. A big mistake, as a business plan helps identify possible challenges, and creates a yardstick against which to measure actual performance. Trying to embark on a business project without at least a semblance of a plan is a little like trying to drive a car without a map or even knowing the final destination. You’ll ultimately just zip about in a state of confusion, and end up crashing or running out of fuel. Your business plan is the business map that will take you from A to B in an efficient and timely way. Read our article on creating a business plan for startups.
  • Running into cashflow difficulties. Which mantra shall we use? “Cash is King” or “Cashflow is the lifeblood of any business”? Pick either, they’re both bang on the money – many startups find themselves unable to continue simply because they get their cashflow projections horribly wrong. A startup is a notoriously unpredictable business animal to control – money coming in will often be far away from the rosy eyed projections that you made while sipping hot chocolate in your study. Startup owners must almost expect cashflow difficulties, and have a plan of defense in case they do materialize. Who will you turn to if you’re met with a sudden demand for cash, and there’s just no money left? The usual financiers? Peer to peer lending sites? Venture capitals? The bank of mom and dad? Here’s some more information about getting your cashflow right.
  • Failure to measure key metrics. Successful startups will know the key business health metrics and will watch them like a hawk. Keeping a close eye on the numbers will quickly identify areas that could present danger – costs of acquiring those all important customers, advertising performance, and comfortable working capital are a few of the key things that will be of interest to the business owner.
  • Just calling the market wrong or having a weak business model. So many small startup owners are eternal optimists – as endearing as that may be,  people sometimes just read the market size or appetite wrong. It happens. Perhaps the core product doesn’t quite appeal to the market or simply fails to present a sufficient USP in a competitive, dog eat dog industry. Or, perhaps the market timing for the core product/service isn’t right. Business model failure is also a common reason behind startup failure. This failure can be due to many reasons – such as the startup owner failing to understand the nuances of the market including typical product life-cycle periods, customer acquisition costs vs monetizing them (cost of acquiring customers ends up higher than their lifetime revenues), or failing to build in robust revenue streams into the business (such as recurring income).