Don't Be A Failure: 5 Reasons Startups Fail & How To Avoid Them

Every entrepreneur is passionate about starting their own business knows that the journey is filled with hurdles, surprises, and challenges.

Failure is one of the artist's greatest teachers. It doesn't just push you to improve your craft but also helps you see what others are doing wrong, and how to avoid them in the future. There are plenty of failures that happen during the startup journey — and it's important to learn from them.

Business failures are not unique to startups. They're a reality in any field that requires building a viable business model, management and execution skills, and the ability to make tough decisions (when to cut staff, when to outsource work). Let's face it: there are many reasons why startups fail. But don't despair: there are also ways you can avoid being part of this statistic.

1. Lack of experience.

When running your own business, there are several factors that may lead to the death of your new venture. A common reason why businesses fail is the lack of experience in dealing with management issues and customer relations. What many entrepreneurs don't realize is that they lack knowledge in areas such as leadership, managing employees, and interpersonal relationships with clients. Learn from others who've been through similar struggles as you launch your organization. A successful startup requires management skills, experience, communication, and management skill to help your business grow.

How to Prevent:

Learn the necessary skills through training and personal development classes, preferably before starting your business. Leadership abilities, client relations, basic business tactics, and management abilities can all be developed with the proper research and practice.

2. There is no well-defined plan or mission.

A business plan is an essential document that outlines your business objectives, strategy, and financial forecast. If you don't have a clear understanding of your business vision, it will be difficult for you to reach your goals. A good way to prevent failure is by creating an effective plan before starting a new venture. For example, if you want to start a tech company, it is crucial that you develop a solid foundation and structure before getting started. A good business plan is a roadmap for success, and at the same time, it can be a great source of inspiration and motivation. The best way to plan is based on your knowledge and experience. Work with others so that their feedback can help you devise the best strategy in order to achieve your goals as an entrepreneur.

How to Prevent:

Before you begin, create a comprehensive business plan and validate your business idea.

This will make it easier for you to answer questions and explain your company to others along the way. Prepare yourself with adequate communication skills and strategies.

This will allow you to easily communicate your ideas and mission to customers, investors, employees, and other key stakeholders.

3. Unable to manage costs.

Every business begins with a limited amount of capital and eventually runs out of funds. Although you may have enough money for initial startup costs, it's easy to underestimate how long it takes to recoup your initial investment, let alone turn a profit. You must be financially self-sufficient for at least six months and be willing to fund your business during difficult times. It is up to you to determine when you will reach your financial breaking point and how you will generate revenue before then.

How to Prevent:

If a startup fails, there is usually one common factor in the failure: lack of capital. In order to avoid failing, learn how to raise sufficient capital with investors and other types of funding. Find out if you have a product that people will buy by offering it to a sample group. Don't forget to build up a sizable cash reserve as well so you can get through the challenging times.

4. Not prepared for the unexpected.

The business world is a volatile and unpredictable place, which means there are a lot of forces beyond your control that can disrupt your operations. You need to be prepared for the unexpected, especially when you are running your own business. If you’re not set up for these situations, then you could lose everything from lawsuits to a complete collapse of business due to unforeseen circumstances beyond the control of the owner.

How to Prevent:

Purchase insurance for unanticipated emergencies, accidents, or natural disasters to avoid footing the entire bill if something goes wrong (see a full guide to business insurance here).

Prepare a backup cash reserve and be ready to pivot your business if the market shifts.

Make certain that your company is legally compliant in all of its activities (for example, properly onboarding employees and never infringing on another company's intellectual property); there is no reason to get caught up in an expensive legal battle that could have been avoided.

5. Overspending and inefficient operations

A startup's costs are high: labor, office space, materials, marketing, hiring, research, and so on. It may also be tempting to buy items that make you appear professional and successful.

However, rushing into purchases is a sure way to bankrupt yourself. When starting a business, it is crucial to be able to identify long-term goals. You'll want to think about how much money you want to make in the next year as well as three years from now.

How to Prevent:

Gain budgeting and cost-negotiating skills. Try to bargain to get the best materials and labor for your budget since costs with many service providers are not always fixed. Consider giving equity in lieu of a higher salary if you absolutely must have a top-notch employee but are unable to afford them. List the expenses you want, then draw attention to those that are necessary; do not include any that are not absolutely necessary for your survival. Do you actually need an office in the first few months of your business? Or do you prefer that it convey professionalism?

If you want to avoid failure, take the time to assess your startup's bottom line. Does it need re-organization? Do you need to adjust your marketing plan? Look at your strengths and weaknesses and try to play to the former. The key is to put together a team that can step up and make things happen when the going gets tough. Communication is also important since startups have a tendency to grow fast, so having a common mission is crucial for the success of any business.