Nine out of ten of start-ups will fail. Sorry, but every entrepreneur needs a dose of reality every now and then. However, don’t let this statistic discourage you. In fact, let it encourage you to work smarter and harder towards your dreams and aspirations.
As an entrepreneur, you may have heard that statistic before. While many first-time business owners find success, it is far more likely for a business to struggle to get out of the initial stages of a start-up. Fortunately, if you are able to understand and prepare yourself for some of the pitfalls that many first-time start-ups face you will get to be that 10th startup in the statistic. One thing is clear though, it is impossible to achieve and sustain success if you aren’t aware of the most common pitfalls that make start-ups fail.
Even if you are unsuccessful in your first attempt, being prepared for that outcome will make the experience a little bit easier and will set you up for even higher chances of success in your next venture.
So, why is it that your first business is likely to fail? Here are a few of the most likely reasons why:
According to the Harvard Business School Study, “Why Most Venture Backed Companies Fail,” 75 percent of venture-backed startups fail. The article says that the reasoning behind it stems largely from the industries prioritization in financial analysis versus operational capabilities. In a study by Statistic Brain, Startup Business Failure Rate by Industry, the failure rate of an American company after five years was over 50 percent and after ten years, over 70 percent.
The same study also asked company leadership the reason for business failure. The companies’ lists include four main reasons for failure, twelve management mistakes, and more:
- Lack of focus
- Lack of motivation, commitment, and passion
- Too much pride, resulting in an unwillingness to see or listen
- Taking advice from the wrong people
- Lacking good mentorship
- Lack of general and domain-specific business knowledge: finance, operations, and marketing
- Raising too much money too soon
All of these focus on the decision-making of the entrepreneur and general business knowledge.
CB Insights compiled a list of the Top 20 Reasons Startups Fail. Each of these reasons for failure is due to a failure in leadership at some level. The top nine most significant from this study are:
- No market need
- Ran out of cash
- Not the right team
- Got out-competed
- Pricing/cost issue
- Poor product
- Need/lack business model
- Poor marketing
- Ignore customers
All of the previous reasons for failure are business and team-related issues. It is clear from these studies that issues tied to leadership, such as the leader’s ability to build a strong team and drive a business model, are crucial to the success of a startup.