How Can You Prevent The 5 Most Common Reasons Startups Fail?

1. Poor Market Research

We’ve all been there, standing awkwardly as someone tries to sell us something we just don’t want. The product that is “TOTALLY AWESOME” and that you “just have to have.” In reality, it’s about as useful as a cross between a shoehorn and a kazoo. Think about it – are you that entrepreneur selling a product no one wants?

Today’s successful entrepreneurs do their market research BEFORE building their product and becoming that out of touch salesman. Demand for your product is the key to your sales.

How do we fix this? Do your research.

2. Enthusiasm, But No Drive

Almost all entrepreneurs have enthusiasm for their idea, product, or company, but that enthusiasm can only take them so far. Enthusiasm is like kindling, it can get the fire going, but won’t keep you warm all night. Success in the startup world takes determination and drive that comes from deep within.

How do we fix this? Grit and follow through – if you really want it, stay on it.

3. Internal Struggles

Most startups are not a one-man show. They more closely resemble a rowing team, with all members working together to move forward. So, what happens when one of the members falls out of sync or when they start paddling backwards? A successful startup is a partnership bound together by the vision that you as the entrepreneur sets forth. But when not all members of the team share in this vision difficulties can arise, these difficulties can often mean the end of the startup itself.

How do we fix this? Take the time to find the right people. If a change needs to be made, make it soon.

4. Competition

Just because it was your idea first doesn’t mean others can’t come in and take it away. Competition can come in anytime with more money or faster processes and overtake your startup fast. First mover advantage isn’t always an advantage, sometimes that advantage goes to those who recognize an existing trend and capitalize on it, doing it without the debt – technical, financial, or otherwise – that’s slowing the first mover down.

Other competition can come from a business that isn’t doing EXACTLY what you are, but is close enough that they can drive down your market share. Decreasing market share means decreasing profits, which can ultimately be your downfall.

How do we fix this? Know what you’re trying to do going in. If you need to dominate your market, have something unique that a competitor can’t trivially replicate. If there’s enough market for everyone, differentiate yourself going in and set your goals.

5. Supply Chain and Labor Cost Issues

Just because material and labor cost one amount one day doesn’t mean they will cost the same tomorrow. Markets for labor and material are constantly fluctuating and entrepreneurs who don’t take that into account may find themselves in a tight spot.

Sometimes the market will allow a product price increase to meet the changing production costs and other times it won’t. Entrepreneurs who fail to build sufficient margins in to their material, supply chain, and labor costs may find their startup brought to its knees by the weight of rising costs.

How do we fix this? Pricing, pricing, pricing. Understand what affects your margins, and never be afraid to price based on what the market will bear rather than your costs.

The IT Freedom team has worked diligently to find ways for Austin area startups to be technologically equipped without being drowned by the cost of that technology. It is a delicate balance, but one that we work hard to maintain with all of our startups.