5 Reasons Why Startups Fail

Business Planning Entrepreneurship

5 Reasons Why Startups Fail

Are you thinking about starting a new venture? Just as it is essential to plan for success, you must be aware of the possible pitfalls as well. This will help you make the right decisions before getting started. Below, one of the founders of IdeaPros, a firm that partners with world class entrepreneurs to create world-changing companies by creating products that customers want, weighs in on why many new businesses do not succeed.

1. Lack of Money

Insufficient funds can affect two aspects of your business. First, a lack of start-up capital could prevent you from performing all the necessary steps to get your business off on the right foot. While you may be able to survive in the short term, you set yourself up for more significant problems in the long run.

Second, being short on cash can create cash-flow problems. This affects the daily operation of your business. It is essential as an entrepreneur to ensure that you have enough money available to cover your fixed costs and operating costs.

2. Premature Expansion

Once you have had some success, there is always the temptation to expand. Expanding business requires careful planning, financial resources and, in many cases, additional personnel. When entrepreneurs expand too soon, they run the risk of compromising the current quality of products and services.

Allow your business to develop and grow in its original vision before thinking of expansion. Not every business was built for fast, large-scale development, and it’s usually best to advance one step at a time.

3. Too Much Reliance on Loans and Credit Facilities

As an entrepreneur, it is sometimes necessary to borrow money to finance your business. If you must borrow, take advantage of the best offers available. Interest rates and high repayment terms can make it difficult for you to service your loan reliably. Before securing a loan, be sure you can honor your monthly commitments and maintain an excellent credit rating.

Frederick Cary, Executive Chairman & Co-Founder of IdeaPros, stated, “When you rely too heavily on lenders and other credit facilities, and consistently fall short on repayments, you run the risk of losing the valuable collateral you offered as security.”

Too many businesses fail because not enough planning went into deciding how the company would be financed, especially in the longer term.

4. No Business Strategy

Many entrepreneurs start a business because they have a great idea. An idea on its own is never enough, no matter how brilliant it is. It is essential that you have a complete business strategy — a well thought-out roadmap for your enterprise. A proper plan will help you anticipate potential changes in the business environment and allow you to predict marketing, financial or operational problems.

Knowing what to expect ahead of time equips you to avoid possible pitfalls and maintain a competitive advantage in the market. Even in business “forewarned is forearmed.”

5. Poor Market Research

Many startups fail because of poor market research. Proper market research and surveys allow you to identify your potential target markets, as well as highlighting additional products and services you can up-sell or offer alongside your primary focus.

In business, it is always important to know what your competitors are doing. Competitor analysis — an essential component of market research — allows you to assess what your competitors are doing and put strategies in place to stay ahead of the crowd.

Entrepreneurs are starting to recognize the importance of surveys and focus groups to discover what their customers want. Jumping into the business arena because of a “gut feeling” will usually result in losing money because the necessary research was not conducted.

These are just five reasons why so many startups fail. When deciding to start your own business, remember that these common mistakes can make the difference between failure or success. Plan ahead!

About IdeaPros:
IdeaPros is a Super Venture Partner™, guiding entrepreneurs with great ideas through the complexities and pitfalls of the startup world. Set on elevating the success rate of new innovative products and apps, their team leverages their collective experience to create demand among consumers and maximize upside potential for their partners.

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