4 Simple Reasons New Startups Fail

Building a startup is one of the most difficult yet rewarding challenges a person can take on in today’s economic climate. Hearing stats like, “90% of startups fail”, and, “123,000 businesses fail every day”, strikes fear into many of those looking to try their hand at becoming an entrepreneur; however, all this fear and anxiety hasn’t come close to stopping people from venturing out and trying new things. In fact, some may argue that the ups and downs of entrepreneurship are what draw many into the world of business, and that’s a good thing. These spirited individuals, along with their talented teams, have improved everything from manufacturing processes to human quality of life, and every industry has been impacted by startups and younger companies.

While the key to success is different for each business, there are common pitfalls that must be avoided. Below is a list of four simple reasons that new startups fail.

4 Simple Reasons New Startups Fail

1. Focus is Too Wide

When first starting a business, entrepreneurs may find themselves at the helm of a ship in the middle a blue ocean and they may choose to go any direction that they want. Most companies have a general idea of where this is and it’s important not to lose sight of that, but smart innovators should narrow it down by listening to the market. Theoretically, the more information a company has on market needs/wants, the easier it is for that company to succeed, but that company must use that information properly. Use the market information as a compass. Produce products and services that follow that compass. This isn’t to say don’t ever pivot though, in-fact, pivoting is encouraged, but only if the pivot is market driven.

Many startups find themselves trying to reach into multiple markets at once and build various products before their initial product is complete. It’s great to have vision and identify potential expansions of services — investors love to hear this stuff — but operationally, everyone should be focused on executing the current task at hand. All available resources (finances, labor, IP, etc.) should be focused on making sure the initial product/service is a success. When this happens, the entire business becomes easier; team confidence and cashflow improves, investors become more interested, and now it’s easier to repeat that success in other markets.

2. Lack of Insight into Consumer Needs

As mentioned above, market information can be used as a “compass” It’s essential to guiding a business where it needs to go. But what if there’s no compass, or it’s broken? Understanding the needs and wants of the market is the only way a startup can succeed. And all customers think differently. It’s common to find entrepreneurs developing something that they personally think the market wants, rather than building something they know the market wants.

How early stage businesses best do this is a question that people have been asking themselves for many years; there are books dedicated to market research best practices. Whether it’s surveys, interviews, or pilot tests… It doesn’t matter. You just need to have insight into the market; it’s not just about asking people what they want, its about understanding. Henry Ford’s famous quote provides us with a great example of the difference when he said, “If I had asked people what they wanted, they would have said faster horses.”

3. Cost Not Emphasized in Design

It’s common for new product concepts never make it to market. In fact, more concepts than not, never even get to the prototype phase. What the market wants drives the success of businesses, so if the product does not have market appeal, it won’t succeed.

On the opposite end of the spectrum, often the visions and concepts are so great, that the cost of achievement is too high. A great recent example is the Dyson Electric Car. Dyson has a large and dedicated customer base and their technology is unmatched in many consumer product categories. So, you’d be right to assume their technology integrated into an electric vehicle might produce a highly desirable car; however, the cost of implementation is currently too high compared to what the market is willing to pay. Let the market be a guide in not just the features and aesthetics of a product, but for the cost of that product as well.

4. Poor Product Launch Strategy

There are many decisions to be made when launching a new product. Markets evolve quickly and new sales platforms are popping up daily. Options continue to expand, but decisions aren’t any easier. The rise of social media, eCommerce sites, fulfillment facilities, etc. has changed the way products are bought and sold. These new tools can be very valuable if they’re used strategically, so young companies must think about how they plan to rollout into the market. Some questions to answer when developing your product launch strategy might be:

  • How much marketing should be done in advance of the product launch?
  • What type of marketing should we do, and on which channels?
  • What will our sales team look like? Will we use affiliates? Brand ambassadors? Online banner ads?
  • Who will we sell to? Wholesalers? Direct to consumer? Distributors?
  • Are we racing competition to get to market, or should wait until we have a very strong product and then release it?
  • Will we do any pre-sales or exclusive releases?
  • What sort of demand do we anticipate? Will we be ok if our demand surpasses our supply?

These types of questions are extremely important to think through because once you launch your product, there’s no turning back. There aren’t necessarily right or wrong answers to these questions, they just need to have purposeful answers. Every business has a different strategy, but those who think critically about these questions are the ones who see more success.

Supply Chain for Tomorrow’s Technology. Ann Arbor, MI.

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Supply Chain for Tomorrow’s Technology. Ann Arbor, MI.

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