Most great companies such as Apple, Facebook, HP, e.t.c. began as a small startup. There are more startups in the world now than you can imagine and many of them turn out to be great companies.
However, a larger percentage never get out of that stage alive, they fail. Various ‘post mortem’ studies have been carried out to find out why startups fail to achieve their goals and here, I have highlighted five below:
1. Insufficient Capital
When you venture into any business, it is required that you have enough capital to cater for the day-to-day running of the startup for at least 6 months. At the inception of operation, you may not meet the profit projection you have made.
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Hence the need for a reserve which would cater for running costs till you level-up. So many startups fail to realize this and usually get into financial problems at the teething stage. The business suffers and fails from inadequate funds for recurrent expenditure.
2. Lack of Business Plan
Many startups owners think they can rush through the growth process of their startups with scanty plans. But they are usually proved wrong when they encounter teething problems which lead to their failure.
To ensure a smooth and progressive growth of your startup, you need to draft a comprehensive business plan. Outline a strategic and workable step-by-step process of how you intend to achieve your business goals.
This will guide and guard you against distractions and also help in decision making. Ultimately, it will ease execution and reduce the risk of ineffectiveness and ultimate failure.
3. Premature Expansion
Startups often want to spread their wings to fly when the wings are immature and weak. The result is an injury, wings breakage and an eventual fall during flight. It is very important to be mature in terms of finances, logistics, personnel, market strength, etc before making moves to expand.
It is irrational to move to a new and bigger office space, procure vehicles, hire specialized personnel like accountants or secretaries, etc when everything to maintain those things are not yet (firmly) in place. Startups fail before they get anywhere because of this.
4. Over Dependence on Debt
Starting a business may be financially cumbersome and one needs to borrow cash, this is not a bad idea. However, it is good that a substantial part of the financial base is personal money/savings.
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Too much reliance on debt may kill the business when creditors come calling. This forces the startup to withdraw some of its funds to pay up. It may even need to sell some assets to meet up payment. Obviously, this is death before birth.
Final Thoughts on Why Startups Fail
If you avoid the above mistakes when structuring a start-up, there is a high probability that it would grow out of its embryonic stage to become a full-grown company without complications. Actively avoiding these mistakes is vital as they are fatal to the growth of startups over time. If they are avoided, the future is bright.