Mistakes That Cause 75% Startups To Fail (And How You Can Avoid Them)

Published on October 24, 2022

My friends and I often discussed starting our own businesses after college. It was mostly silly and outlandish ideas so none of us ever followed up. Well none, except one who always wanted to start a pet grooming service. In the beginning, my old college buddy was full of spark, making big plans for expansion and proverbially shooting for the stars. But eventually, that spark died down and so did his unfortunate business. It hardly took a year and a half before the once ambitious entrepreneur closed shop. So what really happened?

Like always, it was a sequence of events that lead to the startup’s downfall. However, these events were all too familiar. My friend repeated the same common mistakes made by entrepreneurs that cause startups to go under. If one takes a close look at the startup culture in the United States, it becomes clear why most entrepreneurial ventures involve so much risk.

A Bit of Background

Some of the statistics about startups are simply fascinating. These numbers tell you why the world of small businesses is riddled with uncertainties.

1.  40% of Startup Founders Are Between the Ages of 30-39

 

A staggering 74% of startup founders are below the age of forty. What they lack in experience, they make up for in ambition. Meanwhile, only 5% of startups have owners who are on the wrong side of 50. These young CEOs often find it hard to avoid blunders that new entrepreneurs are prone to.

2.  Single Owners Run 39% of Startups

 

39% of startups have a single founder while 40% are partnerships between two individuals. Rarely do the startups have four or more owners (4% to be precise). What implications does it have on the business? For one, limited owners mean limited resources. Hence, startup owners have to constantly rely on venture capitalists and angel investors. 39% of startups have a single founder while 40% are partnerships between two individuals. Rarely do the startups have four or more owners (4% to be precise). What implications does it have on the business?

For one, limited owners mean limited resources. Hence, startup owners have to constantly rely on venture capitalists and angel investors.

3.  Only 25% of Startups are Successful

 

Anyone that enters into the world of startups has 1 in the 4 odds of achieving success. Startups based around a product are worse off with 90% chances of failure. Almost all failing startups make some crucial mistakes that prove to be detrimental. Anyone that enters into the world of startups has 1 in the 4 odds of achieving success. Startups based around a product are worse off with 90% chances of failure. Almost all failing startups make some crucial mistakes that prove to be detrimental.

4.  Tech Startups Favor 4 Cities in Particular

 

High-tech startups in the United States have taken a liking to the cities of Boulder, San Jose, Seattle and Cambridge. These cities have become hotbeds of small tech companies that usually have three to four individuals at the helm. Some of these ventures go on to become tech giants while others disappear.

75% of Startups Fail Because These Avoidable Mistakes

Most startup founders dream big and set high goals. These well-intentioned individuals believe they’re on the brink of something extraordinary but this proves to be the case only one out of four times. Why? Because some common mistakes made by entrepreneurs eventually lead to disappointment.

1.  Lack of Direction for the Business

In the midst of all the excitement, most entrepreneurs miss an extremely crucial aspect of product development: They don’t have a clear vision about their product’s aim, its target market and what problem it will solve.

It’s important to put great thought into creating the identity of the brand starting from its name to the market it desires to capture. While a business name generator tool can help you with the former, the latter will require comprehensive research. Let’s go back to my friend’s pet grooming service for instance. It failed simply because there wasn’t enough demand for such a service in his town.

Daymond John, the founder of Fubu, has this to say; “A common mistake I see many startup founders making is they aren’t solving a real problem. You should try to solve a real problem that people have or identify a much better way for people to do things than they’ve historically done before.”So going by the above quote, here’s where most startups fail:

To avoid the nightmare scenario, startups should make use of pilot projects before launching a product. Or even better, they can organize beta testing to greatly reduce the risk of market rejection.

The key takeaway: Startups need to offer new and unique solutions to people’s actual problems.

2.  Setting High Goals Too Early

Most entrepreneurs want to transform their small startups into corporate behemoths. And they’re always in a hurry. While there’s nothing wrong with dreaming big, scaling too early can be the death of your business. Scaling implies that owners want to hire more people, get more funds, release new products and target new markets.

 

It’s reported that 70% of startups fail because they scale too soon. It’s a harrowing statistic and should serve as a warning for anyone who’s in search of overnight growth. Here’s how you should judge if a business is ready to scale:

The key takeaway: Take things one step at a time. Slow and steady wins the startup race.

3.  Not Making a Proper Monetization Strategy

“It’s almost always harder to raise capital than you thought it would be, and it always takes longer. So plan for that.” – Richard D. Harroach, Author and Venture Capitalist.

 

One of the most common mistakes made by entrepreneurs is not building a good financial plan. Startups need a good monetization strategy to stay afloat. CEOs must keep their finger on the pulse of things. They must have a clear understanding of how much money is really left and whether it’s enough to reach a milestone that can make way for successful financing.

The key takeaway: It’s not enough to have a good product or service; you need a sound financial strategy.

4.  Inability to Make a Good Team

Good teams inspire good results. When the owner fails to assemble the right team of professionals, the whole business suffers.

 

Here are common challenges startups face in their efforts to build a potent team.

In simple terms, startups need cohesive teams that are aptly skilled and share a common vision. This means the right people for the right job and everyone knowing their place within the organization. To ensure productivity, an entrepreneur needs to take an agile approach to properly communicate the project goals. Ineffective communication causes companies to lose $37 Billion on annual basis. So this is not something you can put in the back-burner.

The key takeaway: Build a strong team, communicate goals and utilize the individual strengths of your employees.

5.  Failing to Market the Product or Service

No matter how revolutionary and ingenious your products or services are, it won’t make a difference if people are unaware of their existence. Some entrepreneurs just assume that word will spread and people will come flocking to their business. But the better approach is to spread the word through concentrated efforts.

 

Make the best use of the internet. It provides you the opportunity to reach millions of potential customers with minimal investment. Be sure to keep yourself informed with the tips for finding a winning domain name. It makes it easier for people to find you online.

Final Words

If you’re planning to enter into the murky waters of startups, plan for the best but prepare for the worst. There’s a great amount of risk involved and some of it is beyond your control. Study the market, set achievable goals, create a sustainable financial plan and build a good team.  If you’re able to avoid common mistakes made by entrepreneurs, you might enjoy a place among 25% of startups that enjoy long-lasting success.

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