The 5 Reasons Most Startups Fail

It seems like for every business that succeeds, there are 10,000 that fail. This is a problem seen on a global scale. Most startups want to be the next Facebook or Microsoft, but don’t execute their plan properly. However, startups can avoid this type of negative statistic by ensuring that they plan their launch successfully. For the most part, in my past legal and business experience, I’ve seen that there are five major reasons why startups fail.

Growth 

The first reason being rapid growth. While growth is good, and inevitable in the future of any company and the core of startups, growing too fast can lead to disaster. Startups need to make sure that they have a good grasp on their customer base and the market that they’re currently in  before they move into new markets. It’s advisable to have strong understanding of the current market for a few years before moving into unknown territory.  This can lead to unpreparedness, and a failure in two markets. It is More logical to succeed in just one market, rather than fail in two, in the initial stages of the startup’s life.

Finances

As I stated in one of my other pieces, regarding appointing the right people for executive positions within a start up, often, startups feel that a founder can do all of the work of various executives. However, when it comes to finances; unless the founder is a talented accountant, they should enlist the services of a professional before they jump in over their heads. The biggest problem among startups is the fact that they cannot track their finances properly, and they overspend every dime that they make.

There needs to be a level of control and a department dedicated solely to the finances of the start up, above anything else.  An important item is a Budget;something thats vital to businesses that they can plan for on their end. Start ups should keep accurate records of all of the money that comes into the start up, and all of the money that regularly goes out in expenses before jumping into large purchases. Also, the cost of running a business fluctuates over the years. It is a vital step for start ups to establish a reserve fund, which can support the rising costs of utilities, materials and even salary wages.

Location

For every business, regardless of the space they’re in, location is the key to either success or failure. Most startups tend to jump immediately into renting office space that’s the cheapest, or the first

available. This is a very big mistake. Start ups should only open offices in relative locations, where they will have a presence in their intended markets and a flowing user base. If an office in a prime location is not available, consider running an online start up before actually launching physical offices or stores.

Premature Launch

People may sometimes wonder why banks require business plans in order to give out loans. It is the same reason why start ups should establish their own personal business plan and business model, before launching into any space. Banks want to make sure that companies are prepared, that that they have planned properly for the future, and inevitable or improbable changes that may occur. This is no different when it comes to start ups. Many startups come up with a great idea for product and immediately launched their business, before having an actual business model or business plan, or research for a profitable customer base, or location or even demographic group. This is a huge mistake!  A great product is fantastic, but if you cannot executed it properly because you lack the information in the planning, you will be finding yourself going bankrupt before even selling one unit of your product.

Marketing

Marketing is essential in the age that we live in. Startups should allot a certain amount of funds from their finances, towards adequate marketing. This department will be responsible for any television advertisements for the product, Internet advertisement of the company, interactive ads on video website and targeted website ads. Marketing can be expensive, but without it startups soon find themselves in danger.

© C. J. Leger November 16, 2014 | September 18, 2013

Original story written on Rightstartups by Author C. J. Leger
Article originally from my column on Rightstartups

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