There are a number of causes of startup failure. In the US, 20% of new companies fail within their first year of operation. Failure rates climb to 50 percent in the fourth year. The top reasons for failure include lack of funding, poor product-market fit, and bad hires. In 2019, global pandemics and economic downturns may also lead to the closure of a business. While these reasons don’t mean that your new venture is doomed, knowing them and taking steps to avoid them will give you peace of mind.
Poor marketing: In a study published in Entrepreneur magazine, nearly one-third of all startup failures were attributed to poor marketing. In the case of Quincy Apparel, a faulty marketing plan contributed to the company’s demise. In addition, poor teamwork and management made the company ineligible for venture capital. But even when the founders were capable of overcoming these issues, they were not able to successfully execute their plans.
Insufficient customer base: Many startups fail because of a lack of customers. Although they may have had the best product-market fit, they could not attract customers unless they were properly marketed. Various other reasons for startup failure include cashflow, hiring, and plans. Most startup failures result from problems with these factors. The latter is particularly difficult to master. This is why it is so crucial to choose the niche where there is little supply and high demand.
Low passion: Approximately one-third of startups fail within their first four years. VC investments and venture capital are at an all-time low, despite the fact that venture capital funds are the preferred means of funding new businesses. While the percentage of failed ventures is low, it is still high. The failure rate is higher for tech startups than for all other sectors. In fact, 75% of fintech startups fail within two decades. This is largely due to a lack of passion.
Lack of resources: Late-stage failure is a common symptom of a startup’s development. Though they still have a product-market fit and the basic formula for success, resource shortages can derail the company. In these cases, a startup may have a lack of resources or a mistake or misfortune that prevents them from meeting expectations. The company did not have enough capital to survive and shut down. If you’re a startup, it’s important to plan ahead.
Lack of resources: Early-stage startups are unlikely to attract resource providers until their risk is fully mitigated. They are not prepared to commit time and money until they can prove their product or service is worthwhile. In addition, many entrepreneurs are guilty of a tripwire–an idea that may be great in theory, but fails miserably in practice. The tripwire makes it difficult to achieve profitability and eventually leads to a liquidation of assets.