Starting To Fail: Why So Many Startups Collapse And How To Avoid It
Most business startups fail. In fact, only 10% make it past the first five years. In ecommerce, 70% don’t make it through their first year. The rate of attrition is startling and depressing. It almost makes you wonder why anyone bothers to try. The thing is, in most cases, the reason for failure could be predicted and avoided, but startups across sectors keep on falling into the same traps. So, what’s going wrong, and how can entrepreneurs help to secure themselves better business success?
What’s Going Wrong For Startups?
I’ve been working as an accountant specialising in ecommerce for years now, and during that time I’ve seen the same three mistakes being made time and time again, as entrepreneurs with big ideas and minimal experience have watched their businesses fail.
They’re Unprepared For The Reality Of Business
This sounds like such a patronising thing to say. But it’s also true. Too many people go into a business launch with no clear idea of what it will mean for them. The time demands, the financial demands. The effort and sheer stress of the thing. For a while, all of that can seem exciting and can help to fuel your enthusiasm. But if you’re not prepared for your business to take over your entire life for a time, it’s unlikely to go the distance. Regardless of how many business courses you’ve invested in, or how much money you’ve thrown at the project.
They’ve Jumped On A Trend
Trends have changed since the dawn of social media. The most bizarre fashions, fads, and crazes have become instant global hits – then fizzled a few weeks later. Everyone can be talking about a product or service, then one poor review can mean that it disappears overnight in a shroud of embarrassment or shame. And then there are the cases where the market becomes saturated, leaving those even slightly late to the party left struggling with stock or begging for customers. All of which makes building a company upon a trend a very risky business. Unfortunately, that’s what a lot of startups try to do. So, while social media – and the internet at large – can be incredibly useful tools for a startup, it’s rarely wise to build a business based upon something you’ve seen online until you’ve thoroughly researched your audience and competition, and worked out a viable business model.
They Have No Business Experience
Coming up with an idea and starting a business is easy. But even if you’re prepared to dedicate your life to it for the first five years, if you don’t understand the fundamentals of running a business and have a basic level of financial literacy, you’re still going to struggle. How can you drive a profit if you don’t know how to use a balance sheet? How can you make the right decisions if you don’t know how to use your data? How can you even break even if you don’t understand profit and loss? Without that basic understanding, your business simply won’t survive.
None of this is meant as a criticism. It’s merely an observation of repeated actions. And something that it’s very worth knowing before you spend the time, money, and effort launching a potentially doomed business. But if you really do feel you can commit and you want to succeed, there are things you can do.
What Can You Do To Improve Your Startup’s Chances Of Success?
Really, this again comes down to three key areas.
- Time: You may think that you’re prepared to commit, but there’s every chance that your business will demand far more time than you can ever imagine. So, be prepared to let everything else slide in order to give your business the time it needs to grow and succeed.
- Knowledge: No one goes into a new business knowing everything they need to know. But the ones who succeed are willing to learn. And that means more than simply learning how to build your product and services and understanding your market. You will have to learn how to run a business – financial management, data management, people management, and everything else that goes into making a business work.
- Focus: Lastly, and perhaps the greatest challenge of all, is understanding what you need to achieve and keeping your focus on getting there. In your first year, it’s likely to be product building, sales, and/or customer acquisitions. But whatever your core focus, you can’t be distracted from it if you want to succeed. Only once you’ve hit your first benchmark can you broaden your attention and start aiming for other goals.
Of the 750,000 new startups registered in the UK each year, only around 75,000 make it to their fifth year and beyond. There will be a whole range of unique, individual stories and reasons behind each of the failures. But when you look beyond the details, it almost always comes down to lack of experience, lack of understanding, and lack of research. Keep that in mind, and you might just buck the trend.
Ben Szejka, founder of Your Ecommerce Accountant
