Why Do So Many Startups Fail?

This guide explores some of the common reasons why startups in the EU and UK encounter failure year after year. 

Top 10 Reasons Why Startups Fail

Whether it's poor budgeting, bad luck or lack of planning - there're many reasons why a startup might fail during its first year. However, there are some key aspects of businesses, which if left unattended to, will lead to business failure. Here, we get into some of the common reasons why so many startups don't succeed in their first year. 

1. Incorrect Timing

Timing is key when it comes to startups. Finding a peak in the market is crucial if startups want to see their business fly. Launching a product, especially a niche one, will rely on research and understanding when the product is most desired. 

Being open-minded and willing to adapt and move deadlines as markets change is key for startups. While having a plan in mind is also important, startups need to be prepared to change their goals or efforts to see results come into fruition. 

2. Loss of Money

Money, just like time, is crucial for any business. As they say, time is money (and vice-versa). For startups, many find that money quickly runs out. Not speaking to a financial advisor, investing money nor budgeting effectively will mean many startups go bust sooner than they think. 

While not all startups will have access to huge sums of money at the beginning of their journey, putting the cash into the key areas will see success. For instance, cutting back on costs with employees by hiring remote workers at the beginning might help, whereas investing in a stable and fast broadband connection such as full fibre broadband, if the business is based in a location with broadband connection issues will likely be a must. Likewise, only spending money on necessary endeavours and equipment could also help. 

3. Lack of Hard Work

Another reason why so many startups fail is simply down to hard work. A startup can have everything set in place from loads of cash to partnerships with big names - but, without any hard work, startups will find success in a distant picture. 

Understanding the goals of the startup will help provide a drive behind work. Diving head first without a plan in place for reaching the goals is never a good idea - and one of the many reasons why so many entrepreneurs find difficulty launching their new businesses. 

4. Ineffective Communication

Communication, not only in business, is key for all aspects in life. Leaders and employees that communicate effectively with one another, as well as with customers, will certainly lead to company success. But, many startups each year launch their projects without having any business communication set in place.

Using digital communication, like VoIP business phone systems, can truly help startups grow fast and efficiently. Taking advantage of the new forms of communication available on the market today is how startups can stay afloat amongst competition. The likes of VoIP (Voice over Internet Protocol), the upcoming choice for telecommunication, can help startups establish ground. 

5. Lack of Customer Engagement

Leading on from the point above, not having the right tools set in place for customer communication will result in many startups failing to retain an audience. While posting on social media might seem straightforward, making use of tools that can run and schedule accounts, will help free up time for other areas of the business. 

6. Few Employees

While startups will likely not have the budget for a large workforce, not employing the right amount or type of employees will result in possible problems. Searching for an employee may seem daunting, but ensuring they're right for the job is key. 

Startups will need a workforce to get things going, and choosing the right candidate that fits the startup's goals will make a massive difference. 

7. Bad Partnerships

Partnerships, for any business, is key. But, making bad partnerships for startups is one of the major reasons why they don't continue. Investors that make false promises, or don't continue to inject money into a startup can be another factor as to why so many startups don't succeed. 

Likewise, not maintaining a good relationship with a partner or investor will quickly lead to disharmony and possible failure. 

8. Weak Leadership

Not everybody is destined for leadership - it takes a certain type of someone to be able to lead a team even through failure. While an individual might have a good idea for a startup, or lots of cash to start a business, that doesn't necessarily mean they'll have the character attributes that fit a leader. 

However, attending workshops, doing research and honing communication with the startup team will help. Most ineffective leaders lack communication or willingness to adapt, so, working on these is key. 

9. Poor Planning

Planning, for any business, is crucial. But, for startups, it's even more so. Without a proper plan in place, especially if money runs out fast or the product doesn't quite launch how it was anticipated, then startups can be prepared for the worst. Have a Plan B in place, just in case. 

10. Ineffective Marketing

Marketing a startup properly is one of the greatest tools for success. Hiring a freelancer to help get the website off the ground, getting some help with branding the business or using marketing application tools are all viable solutions for cost-effective (yet not bank breaking) marketing.