One of the most misunderstood beliefs of the startup industry is normally, half of the new businesses fail within their first year. In reality, the data from the U.S. Bureau of Labor Statistics (BLS) showed that just around one-fifth of new businesses fail during the first two years after starting, those in the first five years are 45%, and in the first ten years 65%. For businesses that last 15 years and more, this statistic is only a quarter – 25%. These figures seem to have witnessed no change over time and are supposed to consistently develop since the 1990s. Although the odds are better than the commonly held belief, many US businesses still choose to close down every year.

Also, according to the BLS, there have been 843,320 new businesses in the year ending March 2021. With the data collected above, approximately 168,664 of these businesses may break down within the first two years, but they can have a better chance if they have the right planning, funding, and flexibility. Let’s clarify some most common mistakes that can happen to new entrepreneurs and find out useful solutions for improving their chances of success. 

6 Reasons Why Startups Fail

1. Lack of Investigating the Market

Supposing your dream is to open a real estate agency and you’re finally ready to do that, but the “dream comes true” has blinded you to the reality of the housing market’s crisis, where the economy is in a down, your expected industry has already saturated with agencies and breaking in it becomes more difficult than ever. Haven’t you realized that the initial mistake can result in failure? One of the necessary steps to kick-start your project is finding an unmet need within a market and exploring the utmost solutions to satisfy them. This way seems more effective since satisfying a need is a lot easier than convincing people to accept and spend money on a need that you created.

Lack of Investigating the Market

2. Business Plan Problems

For having a successful business, a solid and practical plan is really essential since it can be the stabilized foundation. A logical plan should include the achievable goals for businesses, the methods to reach those goals, and the forecasting of problems as well as solutions. By qualitative and quantitative research, the plan will point out if there is any need for your business, calculate the necessary inputs and costs, and also, outline the suitable strategies and timeline for the business to implement. 

Once the plan is constructed, you should follow it consistently. Unless you suddenly realize that your business plan is overwhelmingly inaccurate, stick with it or you will fail by changing your strategies whimsically. In case your plan is inaccurate, try to clarify what’s wrong and find the solutions, then continue to follow the fixed plan rather than totally change the business operations based on quick observations.

Remember, your businesses will be costly and have more potential to fail if you continue to make mistakes. Besides, you may also be called to pivot if the market conditions change dramatically that sometimes negatively impact the chances of success based on the initial business plan. To avoid the consequences, you can review the plan and edit it according to the decided pivot. 

3. Too Little Financing

Once starting a business, the reality is sometimes totally different from what you have thought: your capital is less, your business is struggling and you can’t even ask for another loan. Anyway, if you are actually realistic from the beginning, your plan can be started with enough money to run your business and allow the cash to flow in.

If you attempt to stretch your finances in the beginning, it’s possible that your business may not take off and you’ll still be left with a substantial amount of cash to repay. In this phase, a lean management strategy will be useful, but it also can be applied even after this phase. Think of multi-channels that are specialized for funding and financing, and be creative in searching for alternative sources of financing.

4. Bad Location, Internet Presence, and Marketing

It’s obvious that the location plays a vital role in your business by attracting traffic, and so does the Internet presence. These factors enable your business to be seen by potential customers, and with the innovation of digital these days, the location and fame on the internet and social media platforms can be as essential as your physical location. Through internet presence, your business can approach a wide range of potential customers, and the availability and visibility of your business can make it easier to satisfy their needs.

Bad Location, Internet Presence, and Marketing

The same as these locations, having a solid marketing plan is also important to the business. You have to make sure that the marketing not only reaches people, but it must also reaches the right target people. By ensuring the types of marketing are suitable for the target audience, you could avoid unnecessary mistakes, such as giving big billboards to the internet company or creating online ads to promote a heavy-construction business. For making the internet plan more effective, make sure your product or service can reach the audience in need.

5. Remaining Rigid

Don’t be complacent, even if you have done the planning, successfully started your business, and gained a customer base because the needs that you can satisfy are not always there. Once monitoring the market carefully and follow the key trends, you may know the appropriate time to alter your business plan and adjust the strategy to keep on top and remain successful. The same case has happened to Meet Hank, a tote bag online shop established in 2014 by Louis Aronne and his partner, James Baker. By keeping a close watch on the market, they finally decided to expand the categories that include print sweatshirts, print T-Shirts, yoga mats, cushions,… so that they can satisfy the customers’ needs at a higher level. Thanks to that change, their business has flourished within two years and developed steadily until now.

6. Expanding Too Fast

When the business goes into orbit and becomes stable, maybe it’s time to expand and you need to consider this expansion as beginning again. Research, in this case, is really necessary. If you decide to expand the reach of your business, you need to understand the areas, the market, and the trends that you target. Or, if you want to expand the scope and still focus on your business, understand your new products, service, and potential customers, as much as possible.

Expanding Too Fast

In case the entrepreneurs don’t research carefully and expand the business too fast, their strategies and plans can be obsolete, and the financial drain of the failing business(es) can sink the whole enterprise.

The Bottom Line

Although the rate of failure in the startup industry is approximately 20% in the first two years, you don’t definitely have to fail. By conscientiously researching, planning, flexibility, and enthusiasm, you can avoid the risks of failure and become a part of the 25% who can last more than 15 years.