by Jeffrey Walker
| Jul 21, 2014
An oft-repeated stat has it that 8 out of 10 people who start new businesses fail within the first 18 months. That’s a crash and burn rate of 80%. Or stated slightly different, a new business owner has a 1 in 5 chance to survive past the first year and a half. The chances of setting up a successful startup are not that great!
While the tables are definitely stacked against new entrepreneurs, this should not prevent anyone from trying. There are plenty of success stories out there. To increase your chances for success it’s sometimes helpful to look at proven mistakes that can derail the best of intentions.
In the following we provide a brief inventory of some of the biggest reasons why small businesses tend to flame out in the first year or two. Read on for some helpful advice.
No unique value proposition: More and more folks are trying startups and some even have argued why everyone will eventually need to become an entrepreneur. The point here is that so many folks are entering this arena and the competition is fierce. Does your XYZ widget really do anything different than ABC’s widget? Customers are the final arbiters and will tell you what they really think.
Failure to communicate: So you happen to have a really cool idea that you think will gain market traction. That’s well and good but most new entrepreneurs fail by not communicating their new product or service in a clear, concise, and compelling way. Put yourself in the shoes of the prospective customer and ask: “Why should I buy this product and how will it solve my problem?
Insufficient capital: One of the biggest reasons for startup failures is that new entrepreneurs invariably underestimate the high costs that will be required to implement their business vision. Along with this, they will also overestimate the amount of projected sales. This double-whammy leads many new businesses to close their doors before they’ve even started. Entrepreneurs must plan for initial startup costs as well as the critical first two years of operating expenses.
Not tracking your expenses: Uncontrolled spending and poor money management are among the biggest problems for new businesses. Startup owners mistakenly assume that if you build it they will come, and justify their expenses on the belief that the product release will bring in all kinds of sales. But there are no guarantees that customers will buy your product. Not knowing where the money is going is just setting the stage for an epic fail.
Focusing on non-essentials: Startups are notorious at spending money on incidentals that ultimately don’t contribute to the financial prosperity of the business. Paying too much for rent, labor, and materials is a sure sign of trouble especially if you don’t have secure cash flow. Other seemingly legitimate expenses can also become a big money pit if you’re not careful. Building a big trendy website, hiring an attorney to trademark your brand, or incorporating your new business are all expenses that can be deferred, since they are not helping you build revenue.
Failure at the top: Startup owners can be their own worst enemy. Founder dysfunctionality at the top can lead to systemic failures across the business. Stubbornness, risk and conflict averse behavior, greed or insecurity are all attributes that won’t bode well for new startups.
Running a new startup is challenging enough; new entrepreneurs face a host of market unknowns, uncertainties, and risks on the way to bringing a product to market. Unfortunately, new entrepreneurs often waste lots of time and money on developing ideas that ultimately have little or no chance for success
But also remember that failure is not all bad if you can learn from your mistakes and turn them into teachable moments. Failing fast is an approach that recognizes that some of the best accomplishments arise out of hundreds of failures; innovatively this means that failing quickly can also lead to fast learning and better chances of success.
There are clear guidelines that new startup owners can follow to increase their chances of business success. Invest in learning the Lean approach to building startups. Lean has received lots of attention in recent years; it focuses on the customer first and foremost and on developing products around real, testable needs. While never a guarantee of success, the Lean approach provides both budding and seasoned entrepreneurs alike with smart ways of thinking and clear strategies for succeeding in today’s competitive business market.
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