Why So Many Startups Fail

Sections of this topic

    US Bureau of Labor Statistics research indicates that almost 60% of businesses shut down within the first four years of operation. Why? Most fail for one of these reasons.

    1. No viable market for their products

    Many businesses start with the strong conviction that customers will want their products, but without solid experience or data to back that up. Sure, a few with good instincts and even more good luck, succeed anyway, but most fall by the wayside. Market research is indispensable, and that usually involves talking with real customers to find out what they really want. The odds are your first idea is off the mark, which you can adjust if you catch it early enough — during the business planning process.

    2. Insufficient Startup Capital

    Most entrepreneurs underestimate how much time and money it will take to get started and grow the business before it begins to pay for itself. Talk to similar businesses that have started up recently to get a better handle on what it will take. Then revise and adjust your business plan to make sure you have the resources you need to grow your business. Running out of cash is the most common explanation given for shutting down a business, sometimes even when there is no shortage of customers.

    3. Single Founder

    Most successful small businesses start with more than one founder. Why? Well, for one thing, business is all about relationships, and if you can’t find (or won’t ask) anyone to join you, what does that say about your willingness to work with others (employees, suppliers, investors) to achieve success? Moreover, psychologically, you need someone to be in the trenches with you when things fall apart — as always happens at least once in the first three years with any business. It’s just too hard to carry this burden (not to mention do all the work) all alone.

    4. Closed Mindedness

    Entrepreneurs need to carry a paradox in their brains. On the one hand, they have to be so determined, even obstinate, to drive their idea forward no matter what barriers get between them and success. On the other hand, they need to be open to new ideas, to listen to complaints, to change their ideas and strategies if that’s what needs to be done. Keep an open mind for new knowledge as you push forward.

    Good luck!

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    For more resources, see our Library topic Business Planning.