After 35 years of business experience, both in success and failure, I’ve finally found the 5 reasons startups fail.
And I didn’t learn it from my MBA or even the extensive research for this article. I discovered the real reasons startups fail and it all boils down to money.
Startups fail because they either
- Don’t bring in enough money (income)
- Spend too much money (expenses)
- Waste money (inefficiencies)
- Run out of Money (insufficient capital)
- Lose Money (negative cash flow)
- All the above
Pretty simple huh!
OK, Maybe not that simple. So, let’s break these down a bit more.
1. Don’t bring in enough money
- Make sure people really want what you offer (Make changes to your products or services until they do).
- Make sure you charge enough (try different pricing points).
- Ensure customers know you exist (reaching your market is key).
- Clearly define how you bring in money (Marketing and sales aren’t the same).
2. Spend too much money
- Manage operational costs closely (lower operational costs, but don’t skimp on quality).
- Find the money wasters (Eliminate profit drag and cut waste entirely).
- Keep a close watch on your books (know the difference between income, balance and cash flow).
3. Waste money
- Know your overhead (sometimes it’s the little things that help lower overhead).
- Plan legal and tax consequences (Make sure you have the right legal and tax plan in place.)
- Watch your people (employees and workers often lead to waste).
4. Run out of Money (insufficient capital)
- Budget realistically (Define your business size and how much you need to stay in business to become profitable).
- Raise enough capital to cover costs (Finding the appropriate
funding and raise more than you think you’ll need). - Make your plan. Then work your plan (Make a Data Management Roadmap to diagnose your assets and liabilities as you look at capital needs).
5. Lose Money (negative cash flow)
- This is where your business model comes in (and knowing when to change your business model).
- Learn from your mistakes (It’s possible to turn failure into opportunity or loss into gain).
- Sometimes it’s about selling more (this is where promotion and marketing campaigns and trends come in).
5 Reasons Startups Fail Conclusion
In reality, there are many ways a startup fails, but most often its all about the money. However, there was a commonality in most of the research I found. In our next installment, we will look at these in more depth. Until then….