The easiest part in starting a business is coming up with a business idea. Taking your idea from the business concept stage up to business operation stage entails formidable challenges. A founder’s inability to face up to these business startup challenges will result in costly failure.
Let us take a look at the three most common causes of startup failure:
Lack of understanding of the target market
- Many startups do not follow a cardinal rule in marketing: know your customers. If you ignore your customers, how would you know their needs, problems, and pain points?
- Some startups create products or services that nobody needs. Some say you create a need for the product. Some companies have succeeded in doing so and have become mightily famous for their popular products (mostly in the technology field) but this is more of an exception rather than the norm.
- Others have poorly developed products. They fail to produce a minimum viable product and early users found it to be wanting in features that satisfy even their most basic needs.
- Some price their products simply out of reach of customers or way above competitive level.
- While others have ill-timed product launches.
- Many have failed in marketing their products properly. Showing products on social media is not enough.
- Not a few startups have an inadequate amount of working capital. They run out of cash before even reaching a volume of business that can sustain a healthy cash flow.
- Running out of cash can be attributed to poor cash flow management, lack of operating budget, or simply wrong spending priorities.
- Others have not properly prepared for securing funding. Some would approach prospective lenders and investors but are not convincing enough due to lack of a viable plan.
Poor business management know-how
- Not everyone is cut out for running a business. Aside from inadequate knowledge of basic business management, a founder sometimes lacks the focus on the vision for the business, persistence, and willingness to work hard.
- The startup founder may not be able to do it alone so he/she has to find business talents that can complement his/her knowhow. The founder should be able to assemble the right team of dedicated talents to run the startup business. The inability to mold the right team and/or maintain team harmony is detrimental to a startup.
Startup failures can be attributed to a combination of varying reasons arising either in succession or occurring almost all at the same time. More often than not, the startup founder is easily or eventually overwhelmed by these challenges and he/she consequently throws in the towel and close the business.
While preventing startup failure cannot be guaranteed 100%, it can be mitigated by running your business concept through a thorough and research-based business planning.
The most important aspect of the business plan is the market research and formulation of an appropriate marketing strategy and plan to ensure successful customer acceptance and patronage of the product/service.
It is also critical to prepare a realistic financial study that looks not only into the profitability of the startup but also into its liquidity.
A management study can identify who will be professionally and competently handling the various functions of the business.
A well-written business plan should be able to stand scrutiny and to convince prospective funders – investors or lenders – to finance your startup.
Your business plan will be critically important in reducing risks of startup failure. But more than a good business plan, the success or failure of the startup largely depends on your character and competence as a founder.