Did you know that about 20% of U.S. small businesses fail within their first year? That’s according to the U.S. Bureau of Labor Statistics. The small business failure rate is ever consistent. Why do you think these startups and small businesses fail?
You have a brilliant idea for a first business. A month later, you start running the said business. After four years, it is now a big hit, huge like Google. This entire scenario is every entrepreneur’s dream. But this dream is quite far from reality.
Every business owner has encountered business failure at least once in their entrepreneurial journey. Why is that? Is failure inevitable?
What are the Main Reasons for Business Failure?
Ask every startup founder you know, and their answers vary. However, you’ll find that there are reasons common among entrepreneurs. And these lead to business failure.
Running out of funds
Funding is one of the major lifelines of a business. Without funding, operations cease. If you are renting an office, you can’t pay for the lease. You can no longer pay for employees. No means to acquire resources. An ingredient for business failure.
When we say running out of funds, we have two scenarios that contribute: (1) you are not getting funded and (2) poor financial management.
Not Getting Funded
Some entrepreneurs think that getting funded is very easy. It is not! Investors don’t simply contact you on a whim and sign a check for your business. You need to develop an exceptional business concept that will impress investors.
Poor Financial Management
Sometimes it is not the funding that is wrong. Even if a startup is getting a good amount of funding from investors, you still find them out of money in an instant. That is due to poor financial management. Startups often don’t keep an eye on their cash burn rate. Before they know it, they are spending more money than they’re making.
Poor Product-Market Fit
Does your business serve the right product to satisfy your market’s needs? If your answer is “no,” then you’re at risk for business failure. Product-market fit is when your product targets a specific niche and customers are willing to pay for it. If your product does not fit any market, then you don’t get any sales. Suppose there are no sales, no revenue. No revenue means bankruptcy.
Startup leaders should have an overview of everything about the business since they sit at the top of the chain. However, they fail to understand that they need help in other parts of the business. You may be good at sales, but that does not guarantee you are good at marketing. Being a tech genius does not automatically make one an excellent financial manager.
As a founder, one must be ready to wear multiple hats. If you are not good at one field, you need to learn an overview of it. Or hire a field expert that can help you aid you in making decisions. If not, founder burnout will get to you.
Some founders are not good at handling various things at once involving the business. Lauren Conaway says that several founders she knew just cut ties and decided that doing business is not for them.
“Entrepreneurship isn’t for everyone. Being a founder isn’t for everyone.”
Assuming that everything happens on time
You ever heard that running a startup is similar to playing poker? That is mostly true. Like poker, running a business requires skill in the long run but luck is a massive element in winning the race.
Matt DeCoursey, the co-founder of Full Scale, states that it is a common mistake for startup business leaders to assume everything in the business will happen the way they want it to be. They often neglect the nagging truth that change is constantly blowing the industry.
“A recipe for failure is working under the assumption that everything at your new business is going to occur on time and in a way that you want to.”
A founder should always be adaptable and versatile to pivot when things turn bad to not fall under the trap that leads to business failure.
Fear of Business Failure
Who isn’t afraid of failure? Entrepreneurs are worried about business failure. But those successful entrepreneurs are different. They faced their fear and overcame them.
Hernan Sias points out that one of the biggest mistakes of startup entrepreneurs is fearing failure. Businesspeople should try things even if there are risks of failing. Every venture has a certain percentage of success and loss.
“You need to become comfortable with failure.”
Once you get away from that fear, you eliminate the restrictions you unconsciously place on yourself. Fear puts someone inside their comfort zone. That is not wrong. However, you are simply restraining yourself. That space is too small for great ideas.
Be a Successful Entrepreneur!
Why do small businesses fail? It’s either they run out of funding, poor product-market fit, founder burnout, a whole lot of fear, or a little bit of all of these. To be a successful entrepreneur, you must remember that failure is inevitable.
Keep in mind that not all ventures are a success. Yes, you fail, but you should not stop there. Go over again and see the part where you did wrong. Remember, trying something is already one step closer to success.
If you want to know more about handling success and failure in startups, you better watch Startup Hustle TV web series on YouTube. Get startup tips and tricks when it comes to managing, marketing, sales, and many more. All you need to do is subscribe and get notified.