ENTREPRENEURSHIP / OCT. 12, 2015
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10 Reasons Start Ups Fail

The startup scene is littered with stories of small business ventures founded by well-intentioned but ill-prepared individuals. The entrepreneurs envision dreamy commercial stints punctuated by an almost endless supply of fat checks from hordes of happy clients. Instead, the road to commercial success claims the scalps of countless brave entrepreneurs who journey through in droves. In most cases, it appears that basic entrepreneurial lessons are not being learnt. The majority of would-be moguls face insurmountable obstacles either due to their own incompetence, external factors, or both.

See Also: The Key To Start-Up Success: Grit

Being an exceptional programmer does not automatically translate to a trailblazing IT company. Managing a business requires more than just one specialty or skill set; it encompasses various operational aspects, including filing taxes, customer care, marketing and much more. The reasons behind the failures are as expansive as the commercial activities involved. Failure post-mortems compiled by unsuccessful entrepreneurs help shed some light into the dynamics of the rickety startup scene. They can prepare entrepreneurs for the roller coaster ride associated with new business ventures.

Although many failed business owners resort to issuing backward non-apologies or pointing fingers, some display honesty by painting a true picture of what went wrong. Failure post-mortems extract narratives to case studies that should educate would-be entrepreneurs. However, these introspective reports seem to spawn a curious and wrong-headed cult of failure. The mantra appears to celebrate some folks despite their apparent incompetence or bad behavior.

1. Getting Eaten Alive by the Competition

Although many business gurus advise new businesses to pay less attention to competitors and focus on operations, startups must keep track of developments in their operating environment to prevent nasty surprises. It is natural for a hot product or service that receives market validation to attract ravenous competitors. It is reported that 19 percent of startups fail because they ignore the threat posed by rivals. However, obsession is not a solution either. A startup’s products or service must stand out from the competition. The brand must be supported by strong marketing campaigns. Markets are a complex phenomenon; they feature a wide array of moving parts whose dynamics are often difficult to predict.

2. Raising Too Much Money

The majority of startups grapple with the lack of sufficient funding and many succumb to the effects of operating on string-shoe budgets. However, not all new enterprises fall prey to this old nemesis; instead, some are plagued by over-abundance - hard to fathom but real. The problem does not lie with the money itself but conditions attached to it, particularly high interest rates. It is customary for most startups to fund their operations through loans or venture capital.

The joy of securing funds from a bank or venture capitalists is often short-lived; the clock starts ticking once money changes hands. The higher the amount, the greater the burden. Receiving substantial amounts can lead to inflexibility. It becomes hard to change direction owing to wide-ranging commitments. On the other hand, the effort required to raise large amounts may compromise product launch dates, thus leading to mistiming.

3. Internal Clashes

If badly managed, interpersonal complexities can have a destructive effect on small businesses. It is common for egos to clash. To prevent an escalation of hostilities, founders must confront potential issues by asking each other hard questions. If a founder with critical technical skills decides to leave, a hard-to-fill and compromising vacuum may be created. It is advisable to avoid starting a business venture with someone you dislike even if they bring along much-needed skills. On the other hand, discord may occur between the founders and investors. The situation can get ugly very quickly and inflict irreparable damages to a cordial working relationship.

4. The Lone Wolf

Although some talented individuals are capable of establishing high-flying startups as sole founders, for some taking this route can easily translate to failure. For starters, outsiders could view this as a vote of no confidence. Failure to enlist support from friends may speak volumes about the entrepreneur’s caliber. Working as a lone wolf comes with a clear set of downsides: lack of assistance on brainstorming, no moral support, no one to share operational tasks with or stop you from making bad moves. When the founder sneezes, the business comes to a halt. As a result, the startup’s reputation is compromised.

5. Pricing Pandemonium

Failure to set a sustainable pricing model can undermine the viability of a new business venture. Founders must strike a delicate balance between charging an amount the customers are willing to pay and maintaining a profitable margin. This dark art entails testing various pricing models through pilot projects to determine the ideal price before rollout. The quality of a product or service must meet or exceed customer expectations in relation to price.

6. Step Out of the Vacuum

It is easy for business owners to become overly focused or absorbed in their operational vision. This usually leads to loss of perspective, which in turn translates to losing touch with reality. Working closely with investors or advisors that understand the target market helps entrepreneurs stay in touch with the bigger picture. Advisors provide fresh, undiluted perspectives by validating the overall strategy.

7. Gaps in Strategy

The role of meticulous planning in business can never be overemphasized. Although some oversights are inevitable and bear minimal impact on operations, startups can ill-afford to leave anything to chance. Small gaps in planning can dent operational effectiveness or worse – become showstoppers. Oversight on operational aspects like the availability of components or inputs can have a negative impact on the fortunes of a promising venture.

8. Ego-Driven Failure

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game of thrones

Oftentimes ego can get in the way of a good enterprise. Some founders act irrationally based on over-inflated egos. They undermine viability by scaling prematurely, thus burning much-needed operating capital before product-market fit is fully attained. Over-confident founders tend to disregard sound advice from those around them. These leaders can easily provoke cofounder disputes, which creates unwanted tension and undermines a healthy working relationship. It is easy for an entrepreneur with a big ego to take their eye off the ball. A lack of discipline creates unnecessary distractions.

9. Taking Bad Advice From the Wrong People

The startup scene attracts an endless supply of business moguls willing to share their expertise. However, not every guru is best placed to offer advice. Many new business ventures require specialist advice from people with industry expertise. Entrepreneurs must carefully select their advisors based on experience. In addition, industry-specific startup failure post-mortem reports provide frank first-hand insights on operational pitfalls.

10. Ignoring Customer Feedback

Taking users’ feedback for granted is a surefire way to choke the growth and eventually the survival of a business venture. It is a clear sign of tunnel vision. This approach makes it easy for competitors to outmaneuver your entity by responding to the needs of users timeously, thus providing customer satisfaction. Feedback creates positive association and the engagement is a gold mine that can help steer your product or service innovation efforts.

See Also: 8 Reasons Start Ups Fail to Get New Customers

The startup scene is filled with wide-ranging impediments that can be resolved with shrewd and decisive actions. Some of the issues involve finance while others are technical in nature. However, human resources is one of the trickiest areas; it demands delicate handling. In most cases, founders must hire a sizable staff complement to help accomplish the startup’s commercial goals. Unfortunately, the employees may not share the same passion as the founders and may spend much of their time engaging in office politics than working.

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