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Reasons Startups Fail
2021-06-03 /

The Top Reasons Why Startups Fail

Are you afraid of failing your business? Learn from the mistakes of the startup leaders before you. Find out the top reasons why startups fail and prepare not to fall into the trap.

Why do businesses fail? There are several reasons, and startups are not exempted from these. Running a startup is quite a challenge. If the founders are not careful, their business will encounter unexpected difficulties that could eventually lead to failure. 

As a matter of fact, the U.S. Bureau of Labor Statistics states that the percentage of businesses that fail is relatively consistent. It states that about 20% of U.S. small businesses fail within their first year, and roughly 50% have faltered by the end of their fifth year. 

Fortunately, successful entrepreneurs Matt DeCoursey and Matt Watson, founders of fast-growing software development company Full Scale, share their thoughts on business failure. So, here is a list of reasons why startups fail.

Top Reasons Why Startups Fail

1. Not Starting

You may have heard some people say that to prevent failure, don’t start at all. Wrong! Not starting is failure enough. This is one of the central struggles of entrepreneurs: how to get started

Many aspiring entrepreneurs find it hard to visualize how to get from point A to B. Scenarios come crashing down, making it more and more challenging to take the first step. And that is not a good practice.

In their podcast, Matt Watson akin startups to having a diet. It is difficult at first, but you will get the end result you want when you remain consistent. 

“If you can focus on losing one pound or getting from A to B and then carry that momentum on the next step, I think like most things in life, that’s the key to starting.”

DeCoursey also points out the myth of “right timing.” For all its entirety, there is no such thing as right timing. You only need to grab on the reins and kick your business to enter the race. 

“At some point, you really do have to take that leap of faith, or as I like to say, you have to jump and then build wings. Now with that, it doesn’t mean you shouldn’t have a plan. Before you jump, you need to make sure you have all the materials to build the wings.”

2. Failing to Understand Who Are the Target Users

Another major reason that startups fail is that the company does not know its target users. Watson cited an example of a company working on a booking system with features customized exclusively for salons. 

Halfway to completing the salon booking system, the company added booking features for spa treatments, personal trainers, and the list goes on. What once was a salon booking system became a variety of service booking that the intended customer does not want to use. 

Watson said this kind of mistake is avoidable if the startup initially determines its target audience. The startup should also maximize its efforts to fully customize its product for the type of customers intended.

3. Business Relationship Between Co-Founders

Many startups have co-founders. But one of the significant dynamics that leads to problems at an early stage of a company is the working relationships between co-founders

DeCoursey said that conflicts between co-founders could arise when founders have opposing conduct. One founder lacks the commitment and effort to work hard for the business while the other works so hard to make it a success. This does not only lead to startups failing but resentment between people.

He continues by citing an experience of working with co-founders who seem to tail off pretty quickly. They mainly run because they realize that building a startup requires much work and dedication than they initially thought. DeCoursey ended up doing the lion’s share of the business’s work, which led to his resentment with those co-founders.

Therefore, it’s imperative that when the original founder brings in business partners or co-founders into the startup, they should bring in something valuable to the business; valuable through skill set, additional money, a business network of potential clients, and many more.

A co-founder should also be willing to put in a lot of commitment, effort, and hard work for the business the same way the other founder is doing.

4. Hiring the Wrong People

Employees who have the right skills, knowledge, and other qualifications hugely contribute to a startup’s success. However, hiring the wrong people is also one of the pitfalls of failed startups.

DeCoursey said that startup founders unknowingly hire the wrong people, which leads their startups to fail. By the time they realize it, it is too late to bandage the injury. Founders often hire friends or family members to work at their startup or any business.

However, never place significant value on personal relationships over critical business decisions. Yes, it is tough to terminate their employment, and it could strain the founder’s relationships. But business is business.

5. Keep Your Employees Motivated

When you have the right people, make sure that the company keeps them motivated, engaged, and happy. One crucial motivator is for the founder to practice transparency with their employees.

The founder can be transparent on topics such as how the business is doing and getting enough clients and revenues to sustain the business. A transparent founder makes the employees feel that they are treated as essential contributors to the company’s success.

Know More About Starting a Business!

And there you have it, the top reasons why startups fail. You need to get rid of the curse of getting started, focus on a target market, find a reliable co-founder, hire the right people, and keep employees motivated.

But that is not all there is to it. Find out more about startup success by listening to a podcast for entrepreneurs produced by successful entrepreneurs. Listen to the Startup Hustle podcast to learn stories of ups and downs from different startup founders.

Also, check out Startup Hustle TV to know more about business management, marketing, funding, and so much more. All you need to do is to subscribe and keep yourself notified.

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