5 common reasons startups fail (and how to overcome them)
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Fact: Running your own business is hard work.
After more than a decade of supporting entrepreneurs across the UK to start, run, grow, and scale their independent businesses, we've come across some amazing success stories, which we feel very privileged to have been a part of.
But for every story we celebrate, we know there are more would-be-business owners out there who don't feel able to risk it. Some are too worried about the "what ifs" to give it a go.
Team Transmit believe that now is a great time to be your own boss, and that facing the possibility of failure is just part of that journey. But that doesn't mean you can't be prepared...
Here are five common reasons startup businesses fail and how you can overcome each of them to give your business its best chance to succeed.
1. No market demand
When starting up a business it’s important to make sure that there is demand for your idea.
Your product or service needs to solve a genuine problem and make your customers’ lives better in some way. If it doesn't, persuading people to part with their cash will be infinitely harder.
What you can do
Research your target market thoroughly and reach out to them to find out whether they would be willing to part with their hard-earned cash for your product or service.
Make sure the product you are selling, be it a gluten-free cake or a taxi ride, is compelling enough for the customer to choose you over another supplier. The best businesses solve a problem or even provide a solution to a problem people didn’t even know they had.
Your product or service should be different or better than your competitors. Preferably both.
Competitor companies are chasing the same customers and cash as you. Try filling in our Competitor Analysis Grid to help you stay ahead.
2. Cash Constraints
Many businesses fail because they simply run out of cash – either as a result of underfunding or reckless spending.
Most ideas depend on an upfront cash injection to get them off the ground, even if it’s just a small sum of money. This money can be spent on things like equipment, fixtures and fittings, stock, marketing or professional services.
What you can do
Budgeting properly will help to minimise the risk of overspending. This can be done by creating a spreadsheet detailing your estimated upfront costs and how long it may take to recoup these.
Then put together a cash flow forecast so that you can see what your anticipated incomings (sales) and outgoings (cost of sales, overheads) are, and what your cash reserves are likely to be at any point.
We've got two reading recommendations for you at this stage:
We have seen many businesses that appear to be doing well – a healthy order book, a decent profit margin, good clients – yet they still fail because of poor cash management. Once your business runs out of cash, and you can’t release any more, then your business is finished. CASH IS KING!
3. Failure to win customers
Let’s be brutally honest – winning customers can be both incredibly difficult and expensive.
Do not assume people will buy your product just because your mates think it is awesome.
Winning clients generally takes twice as long as you expect. We know businesses that have spent months, or even years, nurturing a relationship with a client before they eventually raise a purchase order.
And, if it takes twice as long to win a client that you anticipated in your financial forecast, not only does it cost twice as much money, (driving to meetings, buying them coffees, taking them to events, sending them Christmas cards), but it also takes twice as long for that cash to start coming in. Your cash flow has to take a double hit.
What you can do
Go back to point one ask whether your product or service is really meeting a genuine need for people. If customers just aren’t biting, is your product compelling enough in the first place?
Look at new ways to help customers discover you online. You might benefit from taking Smarta's flexible Digital Marketing course to learn how to make your brand stand out on the internet and on social media.
If you have physical premises, consider whether your business is in the right location.
4. Wrong price point
Although there might be demand for your product or service, you could have missed the mark somewhere else. If your product or service is too expensive (or too cheap!) it could underperform.
Failing to understand customers is one of the most common reasons businesses fail, and it often comes down to misunderstanding what people are prepared to pay.
What you can do:
Check that you're marketing to an audience who can afford to buy from you (you can do this by collecting a bit of data about where your ideal customers hang out - online and in the real world).
Consider whether the quality you're offering is reflected in the price, and look at ways you could cross-sell and upsell to your customers.
Find ways to reward your returning customers, with a loyalty point scheme or freebies that show how much you appreciate their support for your small business.
5. Poor execution
You might be great at coming up with business ideas. Entrepreneurs are an optimistic bunch, capable of generating ideas all the time: in the shower, over lunch, we do it all day long.
It's the doing part that can be tough.
The key to a successful business is not the idea itself but the execution of the idea. Many people are obsessed with their idea being unique. It doesn’t need to be. McDonalds and Burger King both do OK.
Bringing your ideas to life is hard. It involves many long days, many mistakes, many missed nights out with your mates. The best entrepreneurs are stubborn, determined, tenacious and resilient creatures. They will not be happy until they have built the best mobile app in the app store, the best micro-pub in Macclesfield, or the best dog-grooming parlour in Dagenham.
And once your product or service is ready to take to market, the hard work begins!
Your startup might be an instant success, it might take a while to get going, or you might experience a few failures before your business flies.
Whatever your journey looks like, you'll need to keep topping up:
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