Lack of research and planning:
Startups without a solid business plan and a good grasp of what their target market wants are doomed to fail. It may seem like an obvious correlation, but many businesses still move ahead without having done the requisite market research and planning.
"Market validation is critical," said Elton Rivas, founder of entrepreneur accelerator program KYN Group. "Startups think that a lot of users equal profitability yet often forget to ensure that users of a product will turn into actual revenue."
Part of the process of turning potential consumers into revenue includes defining your startup's unique value proposition and what differentiates you from the competition.
"[Startups that fail] miss the step of defining their value," said John McGee, founder and president of marketing automation company OptifiNow. "You should succinctly be able to define what you do, why a customer should work with you, and the value of choosing your business over another."
While a long-term plan based on your value proposition can keep you on track for success, McGee also said it needs to be flexible enough to navigate any unexpected challenges your business faces.
"The plan is always changing, and you need to be able to adapt," McGee told Business News Daily. "You may start out with a plan that you think is perfect, but three months in [you may find] it's not working. Take a step back, re-evaluate and adjust to a new direction."
Financial mismanagement:
Nothing kills a startup faster than running out of money. Whether you burned through your funding too quickly or didn't raise enough in the first place, you can't do much with your business if your finances are in disarray.
Ken Rutkowski, host of Business Rockstars Radio, said that poor accounting and lack of a cash cushion are among the top reasons new startups fail.
"You can't be in control of your business if you don't know exactly what's going on with your books," Rutkowski said. "If you don't know the real bottom line, you can't make the things happen needed for the business to thrive. You [also need] to have enough cash on hand to cover costs when you need it. Businesses can't survive paycheck to paycheck."
Poor hiring and leadership practices:
So you know your startup is a surefire hit, and you've got enough cash to keep you going. But do you have the right team to make it all happen?
"It always goes back to picking the right people for your team," Rutkowski said. "When you have the right time, everything falls into place and becomes consistently predictable. I'm a big fan of slow to hire and fast to fire, but it's tough to do that in startup mode [when you] need to move fast. It's best to go with recommendations and referrals."
However, the right team with the wrong management style will be just as susceptible to failure.
"Too often, startup managers wear multiple hats and get stuck working in the day-to-day, as opposed to setting goals and a vision," McGee said. "They grow these great to-do lists, as opposed to delegating responsibilities. This [will get them] through the short-term goals, but long-term goals of growth require using your team to accomplish tasks."
Even if you've mastered the art of delegation, your team truly needs to feel that you trust them with the tasks you assign them. If you give your team responsibilities but shadow and micromanage them every step of the way, you won't have the right dynamic to make everything work.
"Teams fail when trust fails," Rivas said. "Founders often mistake accountability for trust. The two are very different, and a lack of trust within an early-stage team will kill the company before you can blink."
Although there are many reasons a startup could potentially go under, there are even more reasons to forge ahead and try to beat the odds.
"The economy is shifting and creating lots of great opportunities for new entrepreneurs," McGee said. "Get off the sidelines and get into the game."
4 Steps to Startup Success
Build your niche:
A leading cause of business failure is not knowing who your product or service is for, and what real problem it's supposed to solve, said Andrey Mihailenko, vice president of sales and marketing at project management software company TargetProcess.
"Oftentimes, entrepreneurs are more interested in satisfying their ego by proving that they can solve a problem, while the business remains an afterthought," he said.
To figure out your startup's true purpose, your first priority should be to build your niche, said Ebong Eka, author of "Start Me Up!: The No-Business Plan Business Plan" (Career Press, 2014).
"Identify your target market, and build up your niche as quickly as possible," Eka said. "Focus on a specific area, and establish yourself as an expert in it."
Create interest in your startup:
Once you've determined your target market, the next step is to get people to notice your product or service.
"One of the biggest mistakes businesses make is investing all their time and resources in creating a product or developing a service," but they forget to market it, said Lais Pontes, founder of public relations and marketing firm The Pontes Group. "You can have the most remarkable product or invaluable service, but if nobody knows about it, then it doesn't count. If you don't have the budget [for a marketing agency], as many startups don't, take the time to learn."
Eka recommended getting on social media as soon as possible, whether your product is ready for the public or not. A good content marketing strategy is key to building interest in your company, both before and after your official launch, he said.
"Social media isn't about being ready," Eka told Business News Daily. "It's about authentic engagement and constant flow of information. Give [potential customers] information so they see you as an expert. It's the power of reciprocity — people will buy from you because they trust you."
Be proactive about market changes:
You can't control everything that goes on in your market, but staying on top of the latest news and trends can help your new startup keep pace with the competition.
"Entrepreneurs must closely monitor current and future economic and market conditions," Pontes said. "Most importantly, they must be flexible and recognize when they need to make changes within their business in response to new developments in the market. By remaining proactive instead of reactive, you can better mitigate risks."
"A regular examination of all internal and external environments through a comprehensive SWOT analysis is always recommended," added Marc Price, managing partner and director of operations at ExpertBusinessAdvice.com. This is an effective method of staying ahead of the constant changes a business can potentially face."
Stick to your strengths:
Doing everything yourself might seem like the only option when you're running a brand-new business on a tight budget. But trying to be a manager, a marketer, a Web developer, a bookkeeper, etc., all at once can lead to problems in the long run.
"Recognize what you are good at, and stick with it," Mihailenko told Business News Daily. "At the same time, build a team of people who will complement each other's skill sets."
Price agreed, noting that there are some areas of operating a business — such as legal, accounting and real estate — that are best left to specific industry professionals.
