Why Do So Many Startups Fail?

London has the lowest startup success rate in the UK. Studies show that only 50 percent of companies formed in 2014 were still trading in 2017. Companies House reports that from January 2018 to March 2018 (3 month period) 167,717 companies were formed in the UK and 129,688 were dissolved.

Below we take a look at 5 of the most common reasons startups fail.

Market Problems

Startups often focus on tackling a problem that is interesting to solve, rather than one that serves a need in the market, most times focusing on an idea that is not solving a large enough problem.  A startup can have all the resources at its disposal, but if it is not solving a pain point in a scalable way, then ultimately it will struggle with customer acquisition. Studies show 42 percent of the startups cited this among reasons for their failure.

Poor Management

Startups frequently lack relevant skills and management expertise in areas such as finance, selling, hiring and executing tasks. If the business owner doesn’t recognize what they don’t do well and seek help, the company will enter a downward slope where the emphasis becomes recovering, rather than growing. A good leader is also skilled at strategic thinking, able to make a vision a reality, and confront change, make transitions, and envision new possibilities for the future.

Cash Flow

Cash flow problems are mostly caused by wither late payment of invoices or a poorly constructed business plan that underestimates running costs. Running out of cash is a serious problem for many startups who do not have the correct infrastructure in place. Startups must constantly monitor profitability and cash flow and act on it to survive.

Indecision, Hesitation & Fear

Inexperience and lack of confidence can cause a startup business to procrastinate for long periods of time. Not every decision made will lead to success. Taking calculated risks and making mistakes are part and parcel of running a business regardless of size. Even worse than making a mistake is to be indecisive when it comes to executing your idea especially when your gut feeling tells you to take the plunge.

Tax Problems

Not understanding their tax obligations resorts in many startups facing the inability to pay their tax bill which is another common reason for their business fails. HM Revenue and Customs will aggressively chase firms that repeatedly fail to settle their tax bills, and they will eventually petition for insolvency.

Conclusion

Extensive research and having the right guidance and advice will go some way in keeping your business from failing. Startups have to be open to listening to suggestions and even criticism given by experienced people around them and acting on it. They also have to be willing to respond, trust and implement ideas that do not conform to their own beliefs sometimes, as hard as that may be.