As venture capitalist investors already know, startup failure rates are not for those easily discouraged. From bankrupt startups to hundred million dollar companies, the survival rate of a startup is extremely low and expensive. As you might guess, there are several reasons for why startups fail over and over again. Sometimes, they cannot secure the funding they need. Whether it is business loan alternatives or an actual secured bank loan, the startup is unable to obtain the financing to get the business off the ground. Most often, why startups fail is due to their struggle in becoming a proven, trusted company.
Perhaps, one of the most common reasons for failure among startups is becoming a proven company. To have business success, the company must become well known, tried and trusted by customers is a long process that leads to a proven track record. Quite simply, if the startup cannot prove its worth in sales, service or both, it is destined to fail.
Want an easy solution? Simply, prove your company worth and attract a loyal base of customers. Then, use your brand strength to pull in more sales and grow organically.
However, proving the company’s value and worth can be a difficult task. To become well-known with a strong reputation, the company must outperform the competition in price, quality or some other measure. Customers or clients require a reason to buy once you have got their attention. Depending on the company, a few good customer experiences could create all the marketing you need for the foreseeable future.
To avoid why startups fail, you have got to work to prove your company. If you have done your homework on start up costs, there should be a strong return on investment for you and everyone else involved. And if you ask your venture capitalist investors, they should agree. They need a great investment return to make up for the high startup failure rates.
Why Startups Fail To Prove Themselves
There are many reasons that startups fail. This is why marketing is important. If you ask experts, they will give you a long list starting with the entrepreneur all the way down to the product pricing. Founders of successful startups have usually failed a few businesses before hand. They will be the first ones to tell you that there is a lot to learn from a startup failure and what went wrong. Here is some of the top reasons startups fail based on what experts have to say and many founders have experienced.
Running Out Of Cash
Whether the entrepreneur has decided to bootstrap the startup or secure a start up business loan, many startups fail due to lack of capital. Sometimes, you might think that just because a startup raised 1 million dollars, they are well funded. However, you must also consider the start up costs involved. If you do meticulous research on the many companies that have closed down over the years, they all have one thing in common. They ran out of money. Many financial experts and company founders will recommend to be funded properly to grow your business rather than run the risk of failure.
Unfortunately, too many startups fail because their market timing was not right. A lot of startups have excellent products and services they are offering. However, consumers may just not be ready for these solutions yet. Perhaps the technology requires other supports that are not in place yet. Or perhaps your product is simply too cost prohibitive at the current time. Regardless, wrong marketing timing is to blame for far too many startup failures.
Of course, some entrepreneurs will have the vision to avoid losing lots of money by closing the business early. However, more often than not, the case is a lack of planning that causes things to go wrong, just as is the case with legislation. There is a concept known as optionality which causes entrepreneurs to lose focus on one strategy. Instead of committing to one strategy or purpose, the entrepreneur tries to leave the company options open, preferring optionality over a clear direction to success. By doing proper strategic planning, you can avoid this mistake and commit to one direction to grow the business.
Business Model Demand
Even if you make something very efficiently or cost effectively, it will not sell without customers. Another reason why startups fail is due to enough traction from the market. This can be due to a number of factors like location, product features, timing or pricing. Regardless, the company is unable to acquire customers that they originally planned to satisfy. To put it all together, the team has been unable to figure out a working business model. Usually when the business model fails, the startup struggles to generate revenues and operate successfully. So, be sure that your business model works before scaling the business.
Proper Management Talent
Sometimes, failed startups have a great product, pricing and market. Unfortunately, it lacks the leadership and management talent to compete in the industry. If employees are unhappy at the company, employee performance suffers and the company overall is not productive thanks to a high turnover rate. Furthermore, a high turnover rate results in unnecessary costs to acquire new talent. Hiring and finding the right people can be very costly for a startup lacking time and resources.
So, if you want to be the exception to startup rates, your startup has to become a proven company. It should not take too long to show that your stuff works! With a little creativity, you can create prototypes, offer free trials or record video demonstrations for people to understand your products. Despite what most entrepreneurs believe, you do not need a full assembly line or company warehouse distribution facility to show value to customers or other businesses. Focus on keeping your start up costs at a minimum while proving your concept.
If this was a perfect world, startup failure rates would be the lowest statistic in business. But, then everyone one would be going into business for themselves! Luckily for entrepreneurs, this planet is far from perfect. Many startup failures become business help success stories, making a large profit from specialty products and services. In niche markets, there is plenty of room for competition, growth, innovation and of course, success. So, now that you know why startups fail, get out there and become a proven company!
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