There are plenty of reasons why companies fail, 90% of startups fail before they even make a profit in the market. The bigger the market, the fewer startups can survive in the competition. 21.5% of startups actually fail in promoting their story to the world in their first year. In this article, we try to analyze the failed case studies in order to give you a clear understanding and a heads-up before starting your own company.
We simplified terms in this article to help you get a grasp of it by just skimming through the headlines. P.S. Please don’t let these reasons hold you back, consider them as learning lessons to avoid doing the same mistakes as the ones before you.
What are the top 10 reasons businesses fail?
Lack of market study
Company owners and entrepreneurs start off their companies on a high streak of passion and dedication. They might even have a kickstart of 1 million sales worth. However, if all this glamour is made on unstable grounds, it’ll quickly fail instead of keeping on a growth streak. This stable ground we’re talking about is your market study. Understand how your market goes from the strength/weakness ratio of the competition and mark every growth opportunity while making sure you understand your position upon entering. Also, notice the market shift across its history to try to anticipate any falls before they happen and optimize accordingly in order to survive its shifts and save the longevity of your startup.
Having a solid understanding of the market also gives you a depth insight into the importance of your product in it. Is it actually needed or not? What are its unique selling points? Who do you compete with? And so forth.
💡 Finding investors and winning startup funds can also help increase your startup longevity, so make sure to find investors in the early stages of starting your company.
Inability to cope with market shifts 📈
One of the most important reasons that make startups fail, is the inability to cope or, at least anticipate sudden market shifts.
A vivid story we can all relate to is when COVID-19 hit, there was non a single industry that wasn’t affected due to quarantine restrictions and the harsh shift in offline purchasing behaviors along with major canceled travel plans. We can say that someone pressed a global reset button and everything went on a very slow base throughout the whole year of 2019. Hotels, restaurants, retail stores, and airline companies among all booking sites were widely affected. It wasn’t until the end of 2020 that things started to open up and life came to a settlement of a post-covid19 norm. Which means it never came back to normal. You can find more about that here, and if you’re more into research papers you can give this report a read.
This sudden market shift was anticipated by major reporting firms such as McKinsey, along with underestimated crisis management consultants.
💡 The lesson: Learn to listen carefully to these underestimated voices and keep a constant eye on every economic, and environmental minor shift and understand how it will eventually affect your market.
Strategic partnership management plays a major role in the success of any company in all its life stages. When they don’t contribute to your brand awareness or don’t actually help generate any leads, revenue, or in any way help in your business goals, you have to face the facts and change something in your partnership acquisition process. Because otherwise, your company is doomed to fail without solid partnerships.
A major take on this is Breezy’s report that states partnerships as a revenue generator exceeding paid search. “While the average business generates 18% of its revenue from paid search, high-maturity partnership programs generate 28%,” the article states.
💡 Your take: Pick your partnerships wisely, and determine your acceptance criteria according to niche relation, mutual business values, and goals behind this partnership, besides the partnership’s revenue-generating ratio. Because when they aren’t filling those slots, it’s a total waste of time and might die out, or you might find yourself exerting much effort in vanity. In these hard times, you just can’t risk it.
Entering the market at bad timing
Sometimes your project idea is so powerful that it pushes itself into the light and you find yourself very committed to launching it as soon as possible. But that might drive you to a quick end.
Just as a turtle does before getting its head out of the shell, check the area around it. Just in case you launch in a bad timing in the market, it may be down, it may be hard to find investors or hard to grow at the moment, and it may be in a time of economic recession like these days due to the Russian/Ukrainian conflicts affecting everything. You should check all your question marks before launching so you don’t step on moving sand.
💡 However; A lot of ideas that were past their time found growth later on after a long time of struggle. Keep reading for more 👇
Ask Jeeves: A business that filed bankruptcy due to a lack of market interest [case study]
It’s story time! 💬
Ever heard of Ask Jeeves? It was promising, but people didn’t realize the need for it at the time of launching as they did nowadays. Let’s see where it originated and how it ended up.
I like to cut the beef short. Ask Jeeves is the premature edition of Ask.com as we know it today.
Back then in 1996, it was launched by Garrett Gruener and David Warthen as the first character-driven search engine. Featured by a gentleman to help personalize it a little during the day, and give the impression that it can understand your daily phrasings, so you could ask any question you like using your everyday language. It lasted for 9 years until 2005 when it was rebranded into ask.com. InterActiveCorp currently owns Ask.com. If you find yourself a fan of vintage tech, you can still check Askjeeves.net.
Ask Jeeves, sadly, didn’t know he was going to compete with the number 1 worldwide search engine. So they soon gave up the competition, ended their attempt to raid search engineering all in all, and relied on a simple question-answer basis for a while.
Later on the road, they also ended that booming community and turned the website into an article-based site. Some people state that they never made peace with the fact that it could’ve been “what Quora is today with the right direction.”
💡 Your take: Make sure to inspect the competition, find the best time to barge into the market, and ask for help and the right directions from investors (they happen to give the best advice)
Notice! During this research, I noticed that the conversation about this brand is outdated. Articles, questions asked and answered in communities, and search volumes are quite old. Like really, more than 12 years old even though it still exists. So that’s the downshift we don’t want you to fade into.
Not learning from previous mistakes
Making mistakes is an essential part of any business, it’s only natural. But the critical element here is whether you learn from them and optimize going forward or just keep repeating them. Not only your own but your predecessors’ mistakes too. So make sure to study your market history very well and pinpoint mistakes older startups did so you can avoid them.
Loss of passion and consistency
Every beginning has a unique passion that pushes you to the limits. This is no news to every entrepreneur before he hits his first obstacle and the honeymoon phase starts to fade away. I’ll tell you one mistake we all succumb to, rushing results. Rushing your business into quick results will quickly doom its failure. That’s what happened with WebVan when the company’s owners were eager to grow and finally indulged themselves in debts until the company filed bankruptcy 3 years after its launch.
So make sure not to take fast and uninformed decisions in your major business procedures. Also, don’t lose hope or passion whenever you face an obstacle or a pitfall, always find new ways to flourish and refresh your idea and make those obstacles open new ways of creativity to add even more depth to your products or services.
Lack of financial management
Another reason for startup failure is poor financial management, which is why you need to act very wisely regarding your spending. Determine your budgets for each aspect of business growth and don’t overcome your limits without a clear understanding of their outcomes. Too many investors may not come in handy when you spend unwisely. Every fund from investors should be planned wisely as to how it’ll drive revenue in the short and or long term. This will be determined by solid business OKRs and key performance measurements or indicators.
Poor business strategy
Almost every article you’ll read about strategies will tell you this one Benjamin Franklin quote, “If You Fail to Plan, You Are Planning to Fail” so we thought we ought to say it as well.
All the above points are direct elements of a solid business strategy. Your business strategy should address all the procedures of financial income, revenue, budgeting, business roadmap and vision, market study, and benchmarking to know where you are and where you are headed. Put all that in a wheel and break it down into steps and determine how you’ll measure your success.
💡 Your take: This is not to tell you to get an academic degree in business planning, you don’t have to excel in all the fields of your business. But to build for success you need to hire professionals to carry your project idea into light and sustain its powerful presence in the world.
Set your big success pillars and make them goal-oriented, time measurable, reasonable, and achievable.
Poor pricing and revenue measurement
Poor cost-effectiveness has major input on business failure. That’s why 18% of companies fail. If you fail to measure your efforts, you won’t know where you’re at and whether your efforts are paying their cost until you hit a wall. There’s no too-cheap or too-expensive product. Instead, there’s a customer for each product. According to their lifestyle, capabilities, and interests. Hence measuring cost-effectiveness and audience studying comes in handy. Knowing your audience and matching your prices with the right audience helps you put your efforts on the right track.
Pricing mainly depends on the cost it took you to produce that product. In addition to launching and the actual value of the product in comparison with other similar products. That’s where you need to conduct competitive research and benchmark your prices.
Bad team hiring
Good hiring can highly impact business growth, but can also highly impact business failure.
I’m sorry to break it up to you this way, but you’ll witness no growth unless you hire the right people in the right positions. Professionals and hustles will help you big time in your start. Here’s a list of good traits you can look for in prospecting employees: commitment, ownership, ability to solve problems with ease and curiosity, good communication, and perseverance.
Create a powerful website to sustain your business! 🚀
Final words 💬
Here’s the breakdown of reasons why most businesses fail:
- Not understanding the market
- Rigidity to sudden market shifts
- Bad timing to enter the market
- Poor cash flow
- Poor hiring
- Poor partnerships
- Not learning from our elders’ mistakes
- loss of passion when it gets serious
- Poor pricing and measuring
- Poor business planning
I hope this article helped pinpoint some of the major flaws that can affect your business. Our main goal is to help you build a sustainable business in the long term and preserve its longevity.
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