For many would-be entrepreneurs, the perks of owning a small business outweigh the risks of starting a company. Although giants like Coca-Cola KO -0.40% and IBM IBM +0.18% get a lot of attention, on the ground, fully 99.7% of employment in the US comes from small firms. While starting a company can be scary and hard, keeping it alive is the real challenge; unfortunately, 55% of US startups fail in the first 5 years. Looking at what these companies did or didn’t do can provide valuable lessons for those trying to make a go of a new business.
Technorian, an ecommerce consulting service based in the UK, posted an informative infographic covering many of the reasons why start-ups go awry. You can download the full infographic with 30+ start-up pitfalls here, but the following are the top 10 reasons start-ups fail. Most are easy to avoid with a little pre-planning and some clear guidance.
Starting a business for the wrong reasons
Is it your desire for money, fame, power and total control that lurks behind your start-up idea? Though you may get to taste all of these exciting payoffs eventually, you are more likely to find yourself struggling to go to work each day if these goals are the only ones pushing you forward.
Your business idea fails to address a real market need
Yes, every once in a while a pet rock takes off, but for most companies, failing to meet a real market need is the path to a quick death.
Inability to gauge the competition
If your answer to the question “who is your competition” is that there is none — you are simply not looking hard enough. You don’t want to focus too much on your competition, but you must identify real threats to your marketing strategy, and make sure you stay differentiated from others in your space…and ahead of them in the race for customers.
Failure to safeguard crucial intellectual property
As an entrepreneur, if you don’t want to get pillaged by others, you better be really cautious about safeguarding your intellectual property. While you don’t want to be too paranoid and fail to share your idea with people who can help you, if you have something genuinely unique you need to protect it.
Lack of a real business plan
There’s no auto-run option when it comes to starting and growing a business. If you try to run a business without a solid, practical, and reliable plan, any sudden gust of wind might suck the life out of your sails. Chart a path and don’t change course unless you can make a compelling business case to do so.
Not pivoting when you should
Change is the only constant; it’s just that its pace and magnitude have grown in unprecedented ways lately. So, if you are unwilling or too slow in pivoting accordingly when your market’s trends change, your days as a business are numbered.
No contingency plan
There’s no certainty that your Plan A will succeed. Therefore, make sure you have a couple of different approaches at the ready. Contingency plans require you to always look for new marketing opportunities and applications for your product. Products often do best in ways their inventors or founders could never foresee.
When it comes to making a go of a business, it is important not to go it alone. Have mentors with business skills and background means finding out about pitfalls before you land in them. Find mentors who can be there for you through the tough times.
A co-founder can start out as your best friend and end up as your worst nightmare. Many Silicon Valley firms will shy away from married couples for this reason. Incompatibility at the top brings turmoil to a business, eventually resulting in a coup or even a complete collapse. Be absolutely sure that the stresses of managing a start-up won’t tear your team apart.
Working “in” the business
If you are overly involved in managing the nitty-gritty of the business as its CEO, who will take care of making critical business decisions? For leaders, it’s more important to be working “on” the business rather than working “in” it. It’s hard not to micro-manage functions in an early start-up, especially when you’re strapped for cash, but if you are stuffing envelopes or answering company emails all day, no one is out there selling your product or marketing your vision.