Why Do So Many Startups Fail?

If you are trying to start up your own business, you have probably been confronted by all manner of alarming statistics. For example, Bloomberg tried to claim that 80% of entrepreneurs were forced to close down their business within 18 months of starting.

This kind of statistic probably frightens people out of creating their own business which is a shame because entrepreneurship is what drives any economy. According to figures gleaned from Statistic Brain, 25% of businesses fail within the first year while 36% fail within the first two years.

As it happens, businesses in the Information sector have the highest fail rate as 63% of them are no longer in existence after 4 years.

While it’s a good thing that Bloomberg’s stats are way out of whack, there are still too many start-ups going out of business. Worst of all, there are some fairly easy remedies to the common issues that plague new businesses and I’ll look at them below.

1 – Not Enough Capital

This definitely falls into the ‘duh’ category but an incredible amount of entrepreneurs make a complete mess when it comes to the finances of their companies. The most grievous error is underestimating not only the startup costs but also the day-to-day running costs. This quickly leads to low cash flow and all of a sudden, the company is under pressure.

Add in the tendency for new entrepreneurs to overestimate their revenue and you have the perfect storm of incompetence. Since most businesses can take up to 24 months to really get moving, you must be conservative when it comes to income and err on the ‘high’ side when estimating expenditure.

2 – Poor Planning

This should be another pretty obvious one but again, too many entrepreneurs enter the business world and are clueless. Successful businesses have many things in common; meticulous planning is one of them.

Before you even consider allowing your enterprise to see the light of day, sit down and create a detailed business plan. www.bplans.co.uk is an excellent resource and contains a number of sample plans for different sectors. All business plans should be realistic and based on accurate information; a good plan may contain the following aspects:

• An in-depth description of the business.

• The goals & vision of the organisation.

• The number of employees needed.

• Complex financial information such as balance sheets, P&L, cash flow analysis, sales & expenditure forecast, income statement.

• A look at the performance of your rivals.

• The advertising, marketing and promotional opportunities available to you.

• How your company will grow and how you will manage an ever-changing budget.

3 – No Unique Qualities

Regardless of the industry you find yourself in, it is almost certain to be saturated so standing out is a must. If you appear to be more or less the same as everyone else in your sector, consumers will probably stick with more established brands. Ultimately, the best you can hope for is a bitter battle for scraps with rest of the invisible companies.

Your goal should be to determine your Unique Value Proposition long before you start your business. What do you bring to the table that’s so different to your rivals? Perhaps you only stock organic goods from Jamaica or else you handcraft everything yourself. Whatever it is, make it good!

4 – You’re Too Mechanical

Yet another huge mistake made by all businesses, yes even giant corporations, is to use social media solely as a tool to market their goods and services. This means adding tweets and statuses related to what they do 100% of the time.

It’s already been proven that brands which manage to come across as a friend or colleague rather than a corporation enjoy far better conversion rates. Show your human side every now and again and your audience will respond.

5 – Lack Of Online Presence

One of the great thing about Internet marketing is its capacity to allow small businesses to compete on a relatively even keel with companies 20 times their size. Quite why you would spend so much time and effort on a business and neglect the ‘Internet’ part of Internet marketing is peculiar.

Although this figure is undoubtedly smaller now we’re at the end of 2015, a HIBU study showed that at the end of 2013, over 40% of UK SMBs still didn’t have a website. Worse yet, only 6% of SMBs had a mobile friendly website.

The same study showed that online sales were worth £480 billion a year in the UK, a figure that has dramatically increased since. In simple terms, if you’re not online, you’re invisible to the modern consumer.

If you are intent on becoming yet another sad statistic in the land of failed SMBs, feel free to ignore all of the above information. If on the other hand you want the sweet smell of success, stop making these errors and turn your vision and hard work into something tangible.

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