Maybe you’re a fledgling startup that’s just launched on the market. Perhaps you’re an entrepreneur with a fantastic business idea who is ready to take the next step. Whatever the case may be, congratulations! Starting your own business is an exciting and rewarding experience. It’s also a very scary one. Juggling multiple balls is a challenge – from keeping track of profit and expenses, undertaking product research and development as well as manufacturing and marketing, the first year for any startup is a very busy time. And there’s also that nagging sense of uncertainty to contend with: have you got it right? Will the company be a success? Indeed, the statistics would suggest that a sense of foreboding is well-founded as 20 percent of new businesses fail to survive the first year. And by year five, only about half of startups are still in operation. With that sobering statistic in mind, what can you do to ensure your startup doesn’t end up as just another failure? This post takes you through five very practical and easily implemented startup strategy cornerstones that will give your business the best possible chance of survival.
Why Startups Fail
Research from CB Insights has identified the top 20 reasons why startups fail. Drawn from an analysis of the post-mortems of 101 startups, it offers real-world insight into the challenges faced by startups. The research shows that rarely is there one single reason behind the failure – usually it’s a combination of the following factors that are at play. Here are the top 10 reasons why startups fail.
Top 10 Reasons Startups Fail
1. No Market Need (42%)
The main reason startups fail is because they are not delivering a product or service that meets a market need. In simple terms, there was no customer and without a customer, there is no business.
2. Ran Out Of Cash (29%)
Running out of money is another common problem. Managing cash flow and ensuring your business has sufficient income-generating streams early on should, therefore, be a key focus.
3. Not The Right Team (23%)
Not having the right mix of expertise, knowledge and skills within the business is another reason for failure. The bottom line is if the founding team can’t put out the product on their own (perhaps with a little bit of help from freelancers and contractors along the way), then the chances are the business will struggle.
4. Got Outcompeted (19%)
Ignore the competition at your peril. You can learn from the successes and failures of others. Indeed, competition is often the mother of innovation, so keep a close eye on what your competitors are doing.
5. Pricing And Cost Issues (18%)
Getting the pricing right is critical to ongoing success. You want to set a price for your product or service that is high enough to eventually cover costs and at the same time is low enough to bring in customers.
6. User Unfriendly Product (17%)
No matter how cool, innovative or different your product or service is, if it fails to address what users want and needs, and is hard to use, whether consciously or accidentally, then the startup will likely also fail.
7. Product Without A Business Model (17%)
A vague business model or a lack of planning was cited as a reason for failure in 17 percent of post-mortems. A robust business plan is essential for attracting investors as well as providing the startup with a clear sense of direction.
8. Poor Marketing (14%)
Successful startups have a clearly defined target audience. They know how to get the attention of that target market, convert them into leads and develop long-term relationships. Conversely, not surprisingly, poor marketing is behind the failure of many startups.
9. Ignored Customers (14%)
A paternalistic, we-know-best tunnel vision is a frequent failing in new businesses. Many a good startup has faltered because the business didn’t seek out feedback or failed to listen to the customers they were trying to serve.
10. Product Mistimed (13%)
Timing your launch is important to get right. If you release your product too early before it is fully refined, then users may write it off as not good enough. You’re then immediately working off the back foot and face an uphill struggle getting those customers back. Likewise, if you release your product too late, then you may find you have missed your window of opportunity in the market.
This top ten list is very revealing. Every budding entrepreneur and fledgling startup should closely examine its operations to ensure you are not making the same mistakes as others that have gone before.
Top 20 Reasons Startups Fail
And while you’re at it, it’s worth looking at the remainder of the CB Insight’s top 20 reasons startups fail as they will also provide valuable lessons to reflect.
- Lose focus (13%)
- Disharmony amongst the team and/or investors (13%)
- Pivot gone bad (10%)
- Lack of passion (9%)
- Failed geographical expansion (9%)
- No financing or investor interest (8%)
- Legal challenges (8%)
- Didn’t use network (8%)
- Burn out (8%)
- Failure to pivot (7%)
Startup Strategy Survival Guide
So, armed with an understanding of why startups commonly run into trouble, what can you do to give your business the best chance of survival? Here we focus on five very achievable strategies that will put you on the road to success.
1. Develop A Business Plan
As we’ve seen, having a clear plan in place is fundamental to success for any startup. Start off with a high-level strategic vision of what you want to achieve along with a timeframe for achieving it. Add in some financials so you have a clear sense of what it will cost and the income you will need to generate.
Don’t be overly ambitious. When you have a fantastic business idea or have experienced the first flush of success, it can be tempting to want to take on the whole world. Far too many startups though collapse in the face of grandiose plans and ambitions. A more sensible and sustainable approach is to identify an achievable win rather than total world domination. Small, achievable wins should be viewed as steps along the way to a much bigger vision. Make sure that you celebrate each achievement as a way of keeping investors and any staff members on board.
Break down tasks into manageable pieces. Approach each task systematically and tick tasks off as they are completed. That way, you won’t get overwhelmed with the enormity of the job and you will also get a sense of achievement as each task is signed off.
If expertise is lacking internally, then outsource to an expert. For example, designing a website is a task where it’s worthwhile engaging a freelance designer for a more professional end product.
2. Set Up An Advisory Board Or Find A Mentor
Being an entrepreneur or one of only a handful of employees in a startup can be a lonely occupation. There is a danger of developing tunnel vision and missing opportunities when there are no colleagues around to brainstorm ideas, weigh up different courses of action or identify solutions.
If possible, set up an advisory board with a wide range of expertise to help guide and steer the business. Advisory board members will provide fresh perspectives and new ideas. While researching for this blog post we found some interesting statistics around women entrepreneurship in the US.
If it’s not possible to create an advisory board, then look to appoint a business mentor who can provide those checks and balances and who can also challenge you.
In addition, become a member of any industry or trade associations as well as professional bodies. Take advantage of any networking opportunities together with any best practice guidelines and advice issued by the institutes. Networking at these events will help to raise your profile within the industry. Furthermore, associations and professional bodies are a great source of expert help and advice and provide inspiration as well as sparking useful ideas.
3. Get Your Finances Under Control From The Get-Go
The old saying it takes money to make money has a lot of truth in it. And so, being frugal in your approach to expenditure will pay dividends in the long run.
Look to build up some reserves as soon as possible. Having money in the bank provides a cushion when you have to rethink the business plan or when things go wrong. No matter how fantastic your product or service is, it takes time and patience to build a successful business. So don’t be tempted to rush into the next stage or spend precious time and resources on developing additional products and services before you have built up those all-important reserves in the bank.
4. Take Time To Listen To Your Customers
Successful startups recognize the importance of listening to customers. From day one, they have mechanisms in place to interact with and invite conversations with customers. In addition, they continually integrate that feedback into their product or service, refining and enhancing the offering in response to comments and suggestions.
So, whether it’s through social media platforms, a blog, customer surveys, focus groups or mystery shoppers, ensure that you set up ongoing conversations with customers. Review the feedback on a regular basis and refine your product offering or service in response. A business is nothing without customers, so don’t underestimate the importance of getting this step right.
5. Make Sure You Have A Work-Life Balance
Burnout is a very real problem for entrepreneurs. It’s tempting to spend every waking hour and every thought on the business, but this is counterproductive. Setting aside time to relax, hang out with friends and family, and simply do something other than working on the company will help you to stay fresh and focused. Taking sufficient time out will reenergize you so that you are better able to cope with the challenges and demands of running a startup.
Startup Strategy Success Factors
Success for your startup is likely to come from a combination of factors:
- Having a good idea – the seed for successful startups is having a good idea that meets a market need
- Good execution – a solid, well-thought-through business plan that is executed with vision and skills
- Customer involvement – developing two-way conversations with customers, listening to and acting on their feedback
- Robust budgeting – a firm control on finances, especially ensuring sufficient cashflow.
In addition, there’s a certain amount of luck involved too – being in the right place, at the right time with the right idea.
If your business has the necessary startup success factors taken care of, then implementing the survival strategies we have identified here will help ensure your business is on the road to success.