5 Common Causes of New Business Failure and What You Can Do About It
Established industries fear startups because of their disruptive ideas and methods. However, many new businesses fail in their first few years. Although there are many potential causes of a startup’s demise, there are a handful that tend to be more common.
- Inadequate Market Analysis
Without conducting adequate market research, new businesses have a far higher risk of failing. If there isn’t a market for what an entrepreneur is offering, despite their enthusiasm, the business will fail. If a business owner wants to make sure there is a need for their product or service, they need to do their homework.
Juicero is an example of a company that could have been successful except for a lack of adequate market research before launching. There was a company called Juicero that made a high-tech juice press so that individuals could easily prepare their own fresh juice at home. Later, it was found that the same amount of juice could be extracted from the packets simply by manually squeezing them. Due to insufficient market research, the corporation was unaware that their product was not addressing a problem genuinely faced by consumers.
- Insufficient Resources
Lack of capital is a common contributor to a failing startup. Insufficient funds prevent many would-be entrepreneurs from launching their businesses. Startups may have difficulty recruiting top talent, creating a marketable product, and promoting their service if they do not have access to sufficient capital.
A case in point is the financially strapped startup Theranos. A startup company called Theranos claimed they had developed a game-changing method of blood testing that would make diagnostics more affordable and accessible to everyone. Unfortunately, the technology did not perform as expected, and the corporation did not have the means to improve it. The company had to close its doors because of this.
- A Lack of Leadership Effectiveness
Ineffective management is a third factor in failed startups. Oftentimes, startups are led by a small team of people who have little to no commercial expertise. A lack of good leadership can hinder a startup’s ability to make important decisions, allocate responsibility, and manage resources.
Zenefits is a startup that went under as a result of poor management. There there was a startup called Zenefits that provided a hub for small companies to handle all of their HR and insurance administration. However, the company’s mismanagement led to the dismissal of several employees and a shift in strategy.
Lack of distinction is a fourth factor contributing to startup failure. Startups often struggle to gain attention in oversaturated markets. For startups to succeed, they need to stand out from the competition.
Quirky is a failed startup that faced the same problem of failing to stand out from the crowd as so many others. The startup company Quirky allowed individuals to propose and crowdfund the creation of novel products. However, it was unable to set itself apart from competing crowdfunding platforms and eventually went out of business.
- Not Having Any Sort of Advertising Plan
The absence of a solid marketing strategy is the fifth leading cause of startup failure. While creating their product or service, many entrepreneurs forget about how to reach out to potential clients. Startups may find it difficult to increase demand for their product or service if they don’t have a well-defined marketing strategy.
An insufficient marketing plan contributed to the demise of Limebike, another unsuccessful firm. The startup Limebike provided dockless bike sharing in numerous American locations. In spite of the growing demand for bike-sharing services, Limebike’s inefficient advertising made it difficult for the company to build a foothold and make a profit. Because of this, many locations had to be closed, and a lot of people lost their jobs.
To sum up, while startups do have the potential for fast development and success, they also face a wide range of challenges. Entrepreneurs can boost their chances of success by conducting extensive market research, securing sufficient money, having good leadership, and setting themselves apart from the competitors with a unique offering.