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Why do startups fail?

Discover the number one reason most startups fail and it’s not money, find out how you can avoid the worst…
Editorial team

/ Last updated on 30th October 2017

No one likes seeing a startup fail. So why do most startups fail? Contrary to popular belief, most startups don’t fail because they run out of money. Yes cash flow is often the reason that the business ultimately closes, but the number 1 reason that most startups fail is that the founder quits. Be it a loss of faith, loss of interest, loss of innovation, however you see it, it’s the founder’s mentality that almost always fails the startup.

Related: 7 Challenges of first-time entrepreneurs

I’m not suggesting that the “cash is king” mentality is false, but rather that running out of money can often be an ‘excuse’ rather than a ‘reason’. As a venture capital investor, here are some of the ‘reasons’ (or rather-‘excuses’) that I often hear when talking to entrepreneurs and what I feel should be done about it.

“I’ve lost interest in the product”

This suggests you’ve lost your passion for the current business model. Maybe it’s because you’ve seen a better product, or (more likely) because the revenue model is taking longer than you originally predicted. Either way, this is NOT a good sign. A sense of resilience is one of the key aspects of success. A pivot is needed drastically to turn the idea into something you want. Rarely (if ever) do financial forecasts for startups work; pushing through the negativity can make the difference between success and failure. Stick with it!

“I can’t find anyone to invest in my business”

Ok, fine. Bootstrap it then. Find a friend/parent/family/partner to provide some capital. Failing this, look for advances from distributors, vendors or even government grants. You don’t always need £50k in the bank to start a business. ‘Go in’ with a web developer or offer a key supplier an equity share in return for 60 days credit. Some of the most impressive pitches I’ve seen are people that say “this is what I’ve done with £500, so imagine what I could do with some serious investment!”

“I don’t have the right staff”

Ideas themselves aren’t worth much- it’s the people behind them that matter most. So if you’ve got people on board that don’t share the same vision- get rid of them. And make sure you’re more careful at the next hiring round.

“I was wrong before- there isn’t really a market for my business”

Build, test, iterate, reiterate, pivot. You know the rest. Most of the time the first product that a startup brings to market won’t meet the market need. Every startup ever created has changed direction at some point- it’s impossible to accurately predict every single step that needs to be taken to take a concept from a business plan to an IPO.

“I can’t cope with the growth rate of my business”

Nice problem to have. Scale back and focus on your core areas. Re-evaluate what your strengths are, and then get people around you who can help. Maybe think about pitching for investment (“I’m growing too fast” is a pretty impressive opening slide for the investor pitch…..)

If you want your startup to succeed, a good product and ambition aren’t always enough. Crisp execution, rather than a clever idea, is vital to the success of a startup. Starting a successful business is never easy, but with the right attitude and the right approach then it’s perfectly possible. When you do make mistakes- learn from them. They’re nothing wrong with experiencing failure so long as you learn from it.

Related: 5 Ways to get your business in shape

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