Did you know that up to 90% of startups and small businesses fail? While this is not something you want to hear when starting out, it is important to know. Lack of funding, poor planning and general impatience are just some of the key contributors. Across almost all industries, the average failure rate for year one is 10% while years two to five see a staggering 70% of new businesses fail.
In order to understand the true extent of it, it’s important to identify what failure looks like. In general, business failure occurs when a company ceases operations due to a lack of cash flow. In short, they are unable to generate enough revenue to cover expenses but what gets them there varies widely. On a positive note, there are plenty of ways to prevent this from happening. Understanding how many entrepreneurs fail and the reasons behind it will help you plan accordingly.
As we approach the New Year, many of you might be thinking about what you are going to do differently next year. Maybe 2023 is the year you finally make the jump and start your journey as an entrepreneur, finally putting that idea out to the world. So while this isn’t written to get you down before you start, it’s probably going to be a bit of a reality check for some people.
Here are the top 10 reasons why businesses fail, so that you can don’t make the same mistakes in your entrepreneurship journey.
Lack of funding
According to statistics, 16% of startup failures are a direct result of cash flow problems and other financial issues. Many startups and entrepreneurs are simply not prepared for the capital required to start and are unable to invest into vital tools such as website design and CRMs. As you can see, this is not a great way to start out and can lead to even more challenges. It’s important to have a clear plan and a detailed budget ahead of time so that you know exactly how much you need. Ensure that you have the money behind you so that you don’t fail at the first hurdle. Apply for as many funding opportunities as possible and take things one step at a time.
Lack of commitment
We’ve all been here from time to time. You have a business idea, get excited about it and jump into full swing without really considering what it takes. Many entrepreneurs fail simply because they underestimate the workload. They may have other commitments or sometimes that initial drive and passion wears off once the reality kicks in.
On the other side of the scale, there are entrepreneurs who are held back by their own limiting beliefs including a fear of failure. This feeling can become so overwhelming that you end up losing all of that drive and commitment. Mindfulness meditation and mantras can be used to regain your focus and keep moving forward. Be sure to understand the scale of the project before embarking on it and make sure you have enough time to commit.
If your unsure what Limiting Beliefs are and how they can hold you back, check out this video:
Lack of expertise/market knowledge
As I’ve said before, entrepreneurs often jump into things a bit too early. While we don’t want to wait around for too long, it’s important to get to know your market first. Just over one third of startup failures are due to a poor product-market fit. A lack of expertise, particularly in business management, can also lead to many challenges especially if you haven’t had experience in managing a team. It’s also important that you understand your competition and identify friends from enemies. This way, you will start feeling more confident and better prepared.
We all want to get things done but a bit of patience can go a long way. Rushing into a business idea can lead to many complications and unforeseen circumstances. Like all good things in life, setting up a successful business takes time. There’s also the risk of quitting too soon if things don’t happen at your desired pace. It really does take time for things to grow and if you accept that early on, you will reap the benefits later.
Victim mindset vs growth mindset
When things don’t go to plan, it’s really easy to put the blame onto others. If you’re just starting out as an entrepreneur, it can feel like everything is set against you. This victim mindset can spiral into a whole host of negative thoughts which can damage relationships and your ability to communicate. On the other hand, a growth mindset, where you learn from setbacks and use them as opportunities, can lead to a more fulfilling experience. This type of mindset will also increase your confidence and enable your ideas to grow.
Check out my article “The Importance of a Growth Mindset and a Healthy Work-Life Balance for Online Business Owners” where we get into detail on how our mindset effects our work life balance.
Lack of support network/coaching
When you are starting out, the need for support is huge. If you really want to succeed in this game, start by investing into a business coach. Yes, it costs money but having a professional to guide you will make a big difference. Business coaches will put you in the right direction and find ways to accomplish your goals. They come with a wealth of experience and valuable knowledge that can be tailored to your own personal needs. Business coaches can also help when challenges arise and answer any questions along the way. A common error is not seeking help where it’s needed. Whether you invest in a coach or not, build a network of people who want to see you succeed and don’t be afraid to ask.
Poor prioritizing/time management
We all know that entrepreneurs are busy people. That’s where good time management comes in handy. Those who are unable to prioritize effectively risk falling behind and damaging their reputation. The last thing you want is to disappoint clients due to your own inefficiency. Set realistic deadlines, order them by importance and always communicate your estimated timeframe with clients and collaborators. If time management isn’t your forte, use a schedule or seek advice from a professional business coach.
To be successful, a good startup needs a detailed business plan. This takes time to develop but it’s a vital part of the process. Seek advice and feedback from other like-minded professionals to ensure that you get it right. A well-developed strategy will set you up to succeed and prepare you for potential setbacks and obstacles along the way. Poor planning will only set you up to fail.
Unable to take constructive criticism
We may not want to hear it, but constructive criticism is extremely helpful for any entrepreneur. Used well, it can enable us to develop our services, products and ideas. Feedback can also open your eyes to new concepts and pathways, sometimes taking you into a completely different direction.
Unfortunately, many of us don’t want to hear constructive feedback. It can feel deflating, overwhelming and damn right disappointing. The trick is to not take it personally. Listen to the feedback and take time to digest it. Perhaps there are some points you disagree with. In that case continue the conversation to get a deeper understanding. You don’t have to follow every bit of advice you get, but taking it into consideration can lead to some surprising results.
Not investing into marketing
You could have the best idea in the world but if it is not marketed well it won’t succeed. Marketing is the number one tool you will need as an entrepreneur. Whether you hire someone to help or invest in a course, it needs to be a priority. In a recent survey, 22% of failed startups did not implement the correct marketing strategies. At the end of the day, if people can’t find you then they can’t buy. It’s that simple. Market invisibility has devastating effects on startups and can quickly lead to business failure.
Do some research and use social media to connect with your audience. Paid ads are a worthwhile investment and a great way to grow your reach. If you are on a tight budget, word of mouth can also be powerful. One thing that I now do which is helping grow my business reach significantly is investing in my SEO. I didn’t know how powerful this could be for my growth, but I hired Fern Colab to help improve my organic traffic, and wow! I’m reaching new people around the globe organically and generating leads from audiences outside of my ad reach and contact list.
You should also encourage your clients to write reviews and provide testimonials. But before you do any of this, put together a clear marketing strategy. Get advice from professional marketers or experienced entrepreneurs to ensure that you have a solid starting point.
Now you know why entrepreneurs fail, it’s time to ensure that you don’t fall into the same trap. Start by focusing on your mindset so that you can go into this journey feeling relaxed and confident. Be prepared for setbacks and use them as opportunities rather than obstacles. Then, when you’re ready, allow yourself time to come up with a plan. Do you have enough money to get started? If not, take a step back and focus on how you will get there. Try not to rush into it. This is a huge commitment and it deserves your complete attention. Seeking advice from a professional coach is one of the best things you can invest in. Most importantly, enjoy the journey. Embrace where it takes you and use it to grow.