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Top 5 Reasons Startups Fail

If you are wondering how often startups go out of business, well the numbers are worrying. According to the U.S Small Business Administration, statistics released in 2016 show that only half or 50% of startups survive for the first 5 years. The same report indicates that two-thirds or 66% of businesses don’t survive to celebrate the 10th anniversary.

 

why do businesses fail

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No one wants to believe that their new business will fail. But, this is a harsh reality that cannot be ignored. So, why do businesses fail and what can you do to make yours thrive? In this post, we’ll discuss five reasons for business failure and how to avoid them.

 

①. Insufficient Reserve Capital

Many new small businesses fail simply because of not having sufficient capital. Make this mistake and chances are you will be forced to take expensive loans just to keep the business afloat. Many factors could cause this, including loss of an important customer or critical employee, arrival of a new competitor or even a lawsuit. Sooner or later, it all comes crumbling down when cash flow problems become unmanageable.

 

There are few measures you can take to avoid such a situation. Firstly, raise enough money to cover startup costs and keep operations running for at least for a year or two. Secondly, have an emergency fund in case unforeseen problems cause financial stress for the business. Thirdly, if you are in an industry where lawsuits are common, cover your business with liability insurance to avoid spending a huge chunk of your capital on court cases.

 

②. Not Standing Out From the Pack

When venturing into an industry with many similar businesses as yours, you will find that the big players get the largest market share. Small establishments fighting for the bottom scraps sooner or later get outpaced by big competitors. Therefore, it is important to stand out from the crowd. The best way to do this is by having a Unique Value Proposition (UVP) and making sure that customers and staff know what it is. Evaluate the competition and find out what it is you can do better than them then make that your businesses’ UVP.

 

 

③. Losing Touch with Customers

Customers are the lifeblood of any business. If you don’t address their needs or listen to the feedback they offer, your business is destined to fail.
The best way to lay down a solid foundation for success is to stay abreast with current trends and interests of your existing and potential customers. You can do this through social media engagement or with the help of customer relationship management tools.

 

④. Being Reluctant to Delegate

Some entrepreneurs become their own enemy when trying to micro-manage everything. Handling almost everything on your own means you will have little time for other important tasks. If the day-to-day operations of your business take up all of your time, issues like getting new customers, creating a vision for the business or grooming others to lead in your absence will be easily forgotten.

 

When feeling overwhelmed, you can lose the drive needed to steer your business to success. As a result, this may trigger poor management practices that will push your venture out of business. Avoid that kind of outcome by delegating busy work to others so that you can concentrate on issues that promote business growth.

 

 

⑤. Falling Prey to Unprofitable Business Models

Just because you have a great idea for a business does not mean that it is feasible. Spare yourself the disappointment of funding a business venture only to close it down several months latter after it proves to be unprofitable. This is where validating a business idea comes in handy. Create a business plan, conduct market research and seek advice from others in order to know whether or not your venture stands a chance to succeed before you invest resources into it.