5 Reasons Startups Fail (And Why Each Is Avoidable)

5 Reasons Startups Fail (And Why Each Is Avoidable)

5 Reasons Startups Fail (And Why Each Is Avoidable)

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Every entrepreneur knows that when you’re just starting out, no one will hesitate to tell you that most new businesses fail. It’s boring, but they’re right. However, what is usually missing from the message is the Why. Instead, there’s a sense of inevitability. Starting a business is hard, so of course most of them fail, right?

But in my experience, there are specific reasons startups fail most often. Recognizing them and preparing for them dramatically changes the odds in your favor. I’ve built my business around partnering with healthcare entrepreneurs to avoid these pitfalls – so far with a 6-0 record, with three new ideas coming to life. Here’s what to watch out for:

Related: 3 Ways to Avoid the Agony of Boot Failure

1. You hired the wrong person

Big companies make a lot of bad hires. But they’re big enough to absorb a certain amount of incompetence without it affecting the bottom line, especially if their processes are solid. The smaller your business, the more it hurts when you hire the wrong person. Committing to an employee who lets you down early in the life of a startup can be hard to overcome.

While there’s always pressure for startups to move fast, take your time with your early hires. For leadership roles, try to stick with people you’ve worked closely with before, even if your top picks are generally valued in their current roles. You will have to sell them your idea, your culture and the future.

So many things can be done, at least in the beginning, on the basis of a fixed-term contract, such as accounting, marketing, HR and even sales. You may be able to incorporate certain functions into partner relations, such as borrowing an investor’s communications team for your limited short-term needs.

Beware of “friends and family” who offer services and help. They mean well, but having the resources, talent, and accountability of a paid professional relationship can make the difference in ensuring project success and meeting deadlines.

2. You can’t sell

Entrepreneurs are very special people. Salespeople are too, but in a different way. It’s rare that you get both in the same individual (although it does happen).

Often entrepreneurs have the vision, the insight, the strategy, and even the ability to manage a team. Everything is in place. It is a great product or solution. But where are the customers? Startups often fail because founders don’t realize soon enough that they don’t have the time, skills, or network to sell effectively. They need a real seller to generate income.

Sales are a powerful resource to have on your team because they can be easily quantified and have a measurable ROI. When hiring a salesperson, weigh their past numbers heavily into your consideration. Hire only those who have powerful networks in your industry and for whom building relationships is like breathing air. Then encourage them to sell.

Related: The 4 Essentials to Build Your Startup Sales Force

3. You spend too much time fundraising

It’s hard not to look around at the mind-boggling capital raises you see advertised daily in the business and trade media and think about how fast you could grow with that money. This startup raised $30 million. It raised $50 million. It’s $200 million for this one.

What is not mentioned in these press releases is the work that the founders have put into these efforts. Many founders spend half or more of their time fundraising. When they are in the middle of a recovery, they only think about it 24 hours a day.

Meanwhile, they lose ground on the problem their business needs to solve. Courting millions of VCs makes perfect sense for some businesses. But before you go down that road, ask if your business can essentially operate without you. If not, continuing to start, seek other funding, or grow organically could keep the startup from going off the rails.

Be sure to ask: how can this investor fuel your vision and growth, other than the capital injection? Do they have a common mission, a team of experts to help provide strategic advice, a network of proven people within your industry, and additional connections or resources, such as financial and marketing support ?

4. Your investors have different incentives

If you are looking for outside investors, make sure you understand their motivations. What do they hope to gain from this investment? What does success look like to them? What are their secondary and tertiary objectives?

Also think about what you might be giving up when you agree to take on an investor. Do you retain control of decision-making?

An investor seeks to see a return. Of course, so are you. But often companies that prioritize mission over revenue, at least initially, do better in the long run. Does the investor believe in your mission? Is their return period reasonable?

While fundraising can be a huge waste of time, disagreeing with your investors can be even worse. Assess the fit to ensure you are aligned with your own vision of success.

Related: 8 Things to Consider When Finding the Right Funding Option for Your Startup

5. You chose the wrong name

Words are incredibly important. Everything from the name of a company to the language you use to describe your future vision matters a lot. It seems like the simplest thing, but a terrible name is a deathblow for a startup.

Don’t fall in love with a name right off the bat. Maybe you’ve chosen a name that’s meaningful or personal to you, but doesn’t reflect how your potential customers feel about your business and your collaboration.

Workshop names. Have a return. Make sure it hasn’t been used before and a URL is available. The name should have meaning, but it shouldn’t be too on the nose. It should be simple, but not the lowest common denominator. It should be different, but not off-putting. It should be something people want to tell others about.

There are, of course, other reasons startups fail – solving a problem no one needs solving or willing to spend money on, or rushing into a market that you do not understand, for example. But as long as you have a good idea, know your industry, and surround yourself with the right people, avoiding these points of failure should set you on the path to success.

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