There’s a lot of talk that goes into how to operate a successful business, and yet so many of new business still won’t succeed. Recent research conducted by Shikhar Ghosh, a senior lecturer at Harvard Business School, has revealed that approximately 75% of venture-funded projects fail. “Very few companies achieve their initial projections” writes Ghosh, and thus “failure is the norm.”
Ghosh’s numbers fall in line with a generally accepted notion that nine out of ten startups are doomed for failure. That means that 90% of all starts up created in America this year will cease operations, while only 10% will scrape by.
While this is a sobering picture of startup culture, the future looks bright: a recent HubSpot survey found that approximately 75% of entrepreneurs believe that technology has made it easier to start a business today than it was five years ago.
Startup Culture is Strong Despite the Numbers
A negative prognosis about the health of startup culture in America would be at odds with the facts. A recent study by the Kauffman Index found that the number of new startups is on the rise across the country. That’s great news given the economic value that startups have for communities across the country. However, it does point out a paradox in which startup culture is healthy, yet only 10% will actually succeed.
It’s clear that there are some common pitfalls that are catching ambitious entrepreneurs off guard. Being aware of these common pitfalls will keep your startup in that coveted 10% ratio - and maybe within a few years, as entrepreneurs learn to work more strategically, the failure-to-success ratio will level itself out.
In the meantime, here are five common causes for why your startup will fail:
No Market Need
A study was conducted by CB Insights of 101 post-mortem startups to analyze the most common reasons for why startups failed. The number one reason? No demand. The study found that 42% of startups failed because there was no market for their product.
This is partly an issue of poor market research on behalf of the company and partly the reality of the market itself. If a startup has done comprehensive market research, they will know exactly what demographic they should be targeting and in which locations they should focus their marketing tactics. If the preliminary market research shows little potential revenue for the product then it simply should not be launched. It’s that simple.
The second ranking factor in the CB study was a lack of money. This points to poor financing across the board. If your startup does not have a proper funding structure then it’s probably not going to last. It’s not easy finding the right investors or getting a bank loan without a lot of risk, so what’s left for the aspiring entrepreneur?
These days there is a lot of buzz around crowdfunding, business funds and contests that can help launch a startup into the big leagues. For example, Hubspot is running a Summer Startup Competition that promises the winner $100,000 in capital to launch their startup and help from expert mentors towards long-term success.
Teamwork Breaks Down
One of the most important intangibles to business success is teamwork. Cohesion must exist throughout the company, otherwise efficiency will suffer. If your startup does not have clear lines of communication, if it lacks a central vision that everyone can get behind, and if it does not have a clear task list with responsibilities and duties for each position, then it is likely to fail in the midst of arguing and in-fighting.
Too Stubborn, Too Proud
Persistence is a gift one must rely on to succeed in business. Persistence can sometimes be blinding, however, especially in the first few years of a startup when the market shows one thing but the founder believes the opposite. Those who can adapt to the market will succeed, while those who are too stubborn to see the facts will fall behind for good.
Venture Support Gone Wrong
Venture capitalists prefer short-term investment schedules that often force startups to scale up before they should. This is one of the main reasons why venture capitalists only see returns on a quarter of their projects: they ask for a short-term debt repayment plan and the new company struggles to repay it.