Starting a business is exciting, challenging, and downright nerve-wracking. Sure, you have a vision and an idea of how to make it happen – but there’s no guarantee you’ll make it.
As a matter of fact, not all startups make it. We’ll explore the startup survival rate a bit later in this article, but for now, you should know that 90% of all startups fail.
This is the sad reality for many businesses out there.
The main reason that result in startup failure is not because of a lack of creativity or ambition. It’s not because of a lack of funding, either. It all comes down to one word: execution. That’s right, execution. As in, the ability to turn your brilliant idea into a successful business.
We like to divide execution into three categories. To have a solid execution, you need to have:
- A great plan.
- A specific target audience in mind.
- A pool of incredible talent.
Think of business like a journey: you need to know where you’re going, how to get there, and what you’ll do when you arrive.
So, how do you avoid becoming another statistic? By refining your execution, of course! (Well, easier said than done!)
It all starts with having a solid foundation.
That means knowing your market, understanding your customers, and having a clear plan for how you’re going to make money. It also means being adaptable, being willing to learn from your mistakes, and being persistent in the face of adversity.
In this article, we will dive deep into the main reasons startups fail, and most importantly, how to prevent or overcome failure. We’ll talk about market research, branding, marketing strategies and more.
So buckle up and let’s get started!
What are the main challenges for startups?
According to Luiza Zhou, one in five businesses fail because of competition.
Competition is perhaps the most significant challenge for startups, as it can be tough to attract new buyers when you are already in a saturated market.
Standing out, however, is all about finding a Unique Selling Proposition (USP) that sets you apart from your competitors.
For example, topflight works with startups using a performance-driven approach that allows businesses to get incredible marketing and SEO services without overspending a penny.
Funding is definitely another challenge, just like securing investments, which is a lengthy, complex but crucial process.
This is why we like to have a solid business plan.
Having a strong business plan allows you to better communicate your goals, target market and revenue streams to your investors.
On top of that, you should have a compelling pitch that communicates your vision and the value that your business can provide to investors.
Think of some really popular examples:
- Softr: “No-code SaaS platform for SMEs to turn their data into custom apps”.
- Remi: “Culture building platform for remote teams”.
- The Plate: “The culinary creator platform”.
Not sure where to start? Check out our content marketing services.
#3 Talent Acquisition
Talent acquisition is another big challenge – as if talking to people wasn’t hard enough, now you have to convince them to help you build your business!
Don’t worry, here are the three ways you can attract (and retain) top talent:
- Create a strong company culture that values innovation, collaboration and creativity.
- Reward your employees well for their hard work.
- Show talent they have room to grow.
- Use a recruitment service.
- Offer flexibility, autonomy or even work-from-home opportunities.
#4 Market Research
Market research is often overlooked – leading to DISASTROUS results.
This is a step you should have done before even opening a startup!
A thorough research can help you identify gaps in the market and opportunities arising, helping you develop a product that solves said specific problem.
So, the transition from startup to business isn’t exactly an easy one. It requires careful planning and execution to grow without sacrificing quality or vision.
To scale effectively, it’s crucial to have a clear growth strategy that outlines your goals, target market, and revenue streams.
You’ll also need to have a strong team in place to help you execute your plan and adapt to changing market conditions, there are many marketing strategies for startups that you can implement.
And on top of that, you need to adapt your software and other technical sides, such as production methods, to accommodate larger demands.
So yeah, that is definitely a lot to think about.
#5 Cash Flow
Cash flow management is another critical challenge that many startups face, as managing cash flow, can be unpredictable and challenging.
To overcome this challenge, it’s essential to have a solid financial plan in place that outlines your revenue streams, expenses, and projected cash flow.
You’ll also need to be proactive about managing your expenses and finding creative ways to generate revenue, for example, improve the user experience to increase conversion.
How do you overcome startup failure?
Unfortunately, not every business makes it. However, that doesn’t necessarily mean that all hope is lost. If anything, things are just getting started!
In this industry, failures are celebrated as much as victories – and with a new strategy, resilience and determination, you too can now achieve big things with your next venture!
Here are the key steps to overcome startup failure:
– Analyse what went wrong
It’s a crucial time to understand what objectively made your plan go up in flames. Was it poor execution? Lack of communication? Maybe your product wasn’t good enough?
There are a plethora of reasons why things went wrong – but fixing said things is the first and most important step you can take to overcome startup failure.
– From zero to hero
Things went wrong. So what?
Richard Branson’s first two businesses went up in flames before he became filthy rich with Virgin. See what happened as a learning opportunity and a minor setback on your road to greatness, instead of an insurmountable obstacle that defines you as a person.
– Seek feedback from past or previous customers
Sometimes, what exactly went wrong may be hard for you to see. This is why it’s vital to constantly seek feedback from customers, investors and industry experts to fully understand what went wrong.
After you do this, it will be a lot easier to learn from your mistakes.
– Pivot if necessary
Overcoming startup failure requires pushing your business in a new, bold direction. This can be tough as it will require plenty of rebranding and out-of-the-box thinking.
It’s also a good time to revisit your current marketing strategy and create a new one that better aligns with market needs.
– Create a better network
You know the saying, “It’s not about what you know, it’s about who you know”.
That couldn’t be any more true.
Start networking like crazy and surround yourself with fellow entrepreneurs, potential new customers, mentors and like-minded individuals that can help you reach your goals faster.
And that is it! As soon as you reach step 5, you are ready to launch a new startup, now much more knowledgeable, and achieve your goals in half the time.
What percentage of startups fail?
According to a study by Exploding Topics, around 20% of startups fail in their first year, while around 50% fail within their first five years.
Other sources suggest that the failure rate may be even higher, with some studies estimating a whopping 90% failure rate with startups.
Yeah, not exactly what you wanted to hear.
However, it’s important to note that the failure rate can vary widely depending on factors such as industry, location, and funding. For example, startups in highly competitive industries such as tech or finance may face a higher failure rate than those in more niche markets.
Additionally, the definition of “failure” can also be subjective.
Some startups may pivot or change their business model rather than closing down entirely, while others may continue to operate despite low revenue or profitability.
Overall, while the failure rate for startups can be high, it’s important to remember that success is possible with the right combination of strategy, perseverance, and a bit of luck.
By learning from the mistakes of failed startups and taking steps to mitigate risks, entrepreneurs can increase their chances of success and build thriving businesses.
Examples of failed startups
This is a lesson on why deceiving customers is never a good idea. MoviePass was a service offering unlimited movies in cinemas for less than $10 a month.
This idea sounded great at first, and people were hooked.
The company promised that customers could go see any movie they wanted at any time, and in 2017, they finally reached enough customers to justify their existence.
However, things got rowdy very quickly.
The company relied on bulk buying movie tickets and then making up the costs with other customer services. However, people enjoyed their movies a bit too much, and turns out, they were actually losing money on every ticket they were buying.
The company then started applying unannounced limits on user accounts, such as restricting the number of movies they could watch or even resetting passwords – but it was all pointless.
The company ended up losing nearly $20 million per month, and after months of borrowing and borrowing, they decided to shut down in September 2019.
Quibi was a video streaming platform launched in April 2020. The company directly challenged the likes of Netflix and YouTube, initially attracting immense funding ($1.75 BILLION, to be precise).
However, it didn’t work out very quickly.
There were a number of reasons why Quibi failed so spectacularly.
First of all, a poor design practice made it so that Quibi content was only available on mobile devices. This acted as a deterrent from people that preferred watching movies on their laptops or TV screens – and let’s admit it, this was a flat-out silly idea.
Second, the COVID-19 pandemic made it difficult to attract subscribers. While the likes of TikTok were blowing up, Quibi struggled to turn their focus away from more pressing issues at hand.
Theranos was a startup that promised to revolutionise blood tests through the use of a commercial blood analyser.
Unfortunately, the plan, which raised more than $600 million in investments, never came to fruition – and the technological shortcomings even triggered lawsuits against the 19 years old CEO Elizabeth Holmes, who was charged with multiple counts of fraud against her investors.
On top of that, Elizabeth even paid a $500,000 fine and was barred from spearheading another company for 10 years. Now that is a failure with a capital F.
What can we learn from Theranos’ failure?
Overpromise and underdeliver and you get roughly the same results.
It wouldn’t be correct to call MySpace a total failure. It managed to evolve from a startup to a fully-fledged business in the time it was alive.
They also raised nearly $40 million in funding and registered 20 million registered users within the first year.
So, to a great extent, we can argue that MySpace was actually pretty successful.
The reason why the social media platform crashed and burned was because another player came into the game: Facebook.
A poorly organised interface, poor PR and a buggy, slow platform made MySpace lose to Facebook incredibly quickly.
On top of that, the platform survived on ads – and too many ads made the platform cluttered and visually unappealing to the users who were switching to a newer, more innovative platform.
Failure to innovate was what ultimately marked MySpace’s death. The platform did try to rebrand itself as a platform for artists and musicians, but it was simply too late. In 2010, the owners pulled the plug, admitting Facebook’s dominance.