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WHY SMALL BUSINESSES FAIL: 7 COMMON REASONS FOR STARTUP FAILURE






Marketing Manager
Anastasia Shevchuk

INTRODUCTION

It is wise to think long and hard before launching a startup, as the failure rate for new ventures is very high. There are many reasons for startups' failures, and we're going to take an in-depth look at them now.

You must identify your business and it's potential for success before asking yourself: what is your business about? What is your value proposition? Who are your customers? Which of your customer's problems are you going to solve? What makes a startup successful?

Having a good idea in mind is a great start, but not enough. Launching a successful startup requires thorough market research, an identified target audience, an expert development team, and many other steps that most startups end up skipping.

So, why do startups fail? Finding out the actual reasons for failure in each case is not always easy, so let's take an in-depth look at the most common ones.


startup depression

REASON 1. NO BUSINESS PLAN

Many startups don't plan for the future because they feel as if their idea for a product or service is enough for them to gain success. While a great idea should help you in the early stages of forming your startup, you need to combine this product with a comprehensive business plan if you want to achieve long-term success.

A lack of planning means you'll be required to make decisions about marketing strategies and product direction on an almost daily basis, which can be frustrating and time-consuming. It's also very difficult to avoid distractions when you don't know exactly what you're working towards.

While creating a business plan might seem like a difficult task, it will allow you to create a road map you can reference over the years to come. Conducting a market research for your product is also an important part of any business plan, and should take your marketing strategies into account.

REASON 2. HIRING THE WRONG PEOPLE

If you're an entrepreneur who strongly believes in the product/service your business provides, and you have a good idea of what it will take to create a successful business, you likely also understand that you'll need to hire employees throughout the process if you want your business to grow properly. However, many startups hire the wrong people.

For instance, some startups focus on hiring their friends, who may not have the necessary expertise. In the formative stages of your startup, it's imperative that you hire people suitable for the job. If you hire the right people, it will be much more likely that your company functions properly.

If you've never hired employees before, these general hiring tips should make the process go much smoother and minimize mistakes during the hiring process.

First off, ask every potential employee about why they want to work at your company and how they would tackle common problems likely to occur on a standard workday.

Don't forget about soft skills either. If the job you're hiring for requires regular conversation with other employees, management, and potential investors, you should hire someone with good social skills and an outgoing personality. Likely the best method to simplify the hiring process is to have a proper HR team within your startup. An HR team for your startup will be able to handle the finding, recruiting, and training of all applicants, which will make your job much easier.

REASON 3. NO MARKET NEED

The reason many startups do not succeed from the very beginning is because they think market research and communication with customers are not required. A lack of market research is a surefire way to lead your startup to failure.

Market research determines the size and trends of your potential target market and provides the team with information about the competition and user needs.

Communication with potential users is a valuable source of information when it comes to designing and fine-tuning your product. At the stage of initial solution building and development, it provides the product user's profile.

It tells us who they are, their age, marital status, habits and experience, as well as the conditions under which they may apply the solution you're offering them.

Knowing all the details about prospective customers will allow you to define what your product will look like, for which platform it should be developed, and which colors and special features it should have.

Furthermore, market analytics is a great tool for making sure your project can compete with its rivals.

To be competitive, a product must be both functional and user-friendly. If it is harder to use than its competitors, no matter how much you care for the user or how unique the product you offer is, you will be out of the competition.

Research results will help you understand if your product is convenient enough and lives up to the user's expectations in all the ways it should.

After all, the user is who defines your success.

Here's a comprehensive guide on how to avoid product-market fit failure and create the solution people really need.


REASON 4. LACK OF INVESTMENT AND RESOURCE PROBLEMS

A common startup issue is a lack of investment and wasteful use of resources.

Raising funds is always difficult. Startups have to put a huge amount of effort into getting potential investors interested in their idea to make it more attractive, so they have to elaborate on their business plan and marketing strategies. The idea has to be clear and simple to give investors a reason to believe in it.

Although some startups manage to find the necessary investments, many of them fail due to their irresponsible use of resources.

For example, they invest in unnecessary product functionality or use the wrong development strategies. Another common mistake is hiring full-time development teams when the budget is tight or outsourcing a complex functionality to a freelancer who doesn't have enough expertise to build it.

One of the most effective ways to solve staff and spending issues in a startup, is to develop a detailed resource plan. A resource plan helps companies to hire a sufficient number of employees and allocate their budgets wisely.

For this, startups often consider various engagement models for hiring highly skilled specialists from outsourcing companies, in addition to several other strategies.

REASON 5. RELUCTANCE TO GATHER FEEDBACK ON PROTOTYPES

Many founders have a hard time allowing others to see their prototype before it is ready.

Failing to get feedback from potential customers is often fatal to a startup. Don't be afraid of someone stealing your idea or showing your prototype to people before it's completely ready.

Getting feedback and criticism on prototypes will help you with product improvement, so you can add or exclude features that people do or don't need.
HAVE AN IDEA FOR AN MVP?

REASON 6. LACK OF SOCIAL PRESENCE

If you want your startup to succeed, it's incredibly important to build an online presence for your company. Many startups fail to find success because they focus solely on delivering their product or service to the market without any thought towards the need for an online presence.

The best way to build your customer base and appeal to your audience is by setting up a strong online presence, which requires effective marketing skills. It is also imperative that you identify your target audience.

To create an online presence that elevates your startup and brand, you need to build a website for your business, as well as a strong social media presence, the latter of which can be done on platforms like Facebook, Twitter, Instagram, and LinkedIn.

The key to marketing your startup successfully on your website or social media page, is to provide customers with regular and relevant content.

REASON 7. LEGAL PROBLEMS

Legal problems aren't one of the most common reasons for startup failure, but there is no such thing as a small legal problem. It's important that you work with legal experts from the start and establish strong relationships with your legal advisors.

Legal problems have sunk quite a few startups before they ever reach the market. This is particularly true of highly regulated or intellectual property industries.

Conducting thorough research into the regulations affecting a particular product or industry is crucial, as is identifying the governing bodies and regulating authorities for your startup.

Trademark, Copyright, and Patent laws can also be particularly tricky areas. Thorough research by legal experts is often a good idea. The time and expense involved at the beginning are an investment in your startup's long-term value.


startup legal promlems

SUCCESS TIPS FOR YOUNG ENTREPRENEURS: HOW TO AVOID COMMON MISTAKES

We never know the outcome of our efforts unless we take the first step. Jeff Bezos said it helped to know that he would regret not trying more than failure.

Take the risk

Find good people

Who you're with is who you become. Reid Hoffman, the co-founder of LinkedIn, noted that the fastest way to change yourself is by hanging out with people who are already the way you want to be.

Take action

The world is full of great ideas, but success only comes from action. Walt Disney once said that the easiest way to get started is to stop talking and start doing. This is equally true for your success.

Learn from mistakes

Many entrepreneurs say mistakes are their most effective teachers. When you learn from your mistakes you move closer to success, even if you initially failed.

Ask for customers' input

Assuming what customers want or need will never lead to success. This is how it works in real-life: ask people what they require directly, and then carefully listen to what they say.

FINAL WORDS

Building a startup has always been a risky business and there are a myriad of reasons why startups fail.

Startup businesses have many issues to solve, including taking the right product marketing steps, hiring and establishing strong and knowledgeable teams, and streamlining inner workflow.

Entrepreneurs are made, not born. Hard work, drive, and absolute determination can fill in the gaps in skills and experience, and the rest is learned by doing, making mistakes, and adapting along the way.

Launching a successful startup requires determination, drive, and iron-clad resolve. If you have these qualities, nothing can stop you!


DO YOU HAVE ANY QUESTIONS?