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Why Start-ups Fail? | An Examination of Common Pitfalls

Story Highlights
  • Financing Issues
  • Inefficient Resources
  • Operations Mismanagement
  • Poor Business Plan
  • The Bottom Line

Start-ups are the lifeblood of economic growth, technological progress, and job creation. But about half of these new businesses fail in the first five years, and two out of every three last less than a decade. What steps can you take to ensure that your start-up survives for the long haul? You accomplish this by avoiding the hazards that cause many entrepreneurs to give up. Here are some common pitfalls that should be avoided for a successful start-up:

1. Financing Issues

The issue of availability of funds is the first. Entrepreneurs must ensure that venture capitalists and financial institutions provide support throughout every stage of the business process. Venture capitalists often pull out of a business because the initial promise of the idea was overstated, and the founders could not turn that promise into revenue.

2. Inefficient Resources

Another reason why start-ups fail has to do with hiring the right people. Often, entrepreneurs need more resources because they are too costly or want to avoid working for a start-up because of the risk. The days of the dot-com boom, when everyone wanted to work for a new company, are long gone. Many workers today are unwilling to take a chance on a new company with an unknown future.

3. Operations Mismanagement

The operational aspect, in which the entrepreneur fails to handle the nuts and bolts of running the firm effectively, leads to a start-up’s failure. For example, many business owners let other people handle the day-to-day running of the business while they focus on the bigger picture. This entails that the entrepreneur should handhold the business, particularly in its formative years or for at least the first year, to ensure that there is no lapse in the translation of ideas into the operation of the business. Frequently, entrepreneurs deem it beneath them to engage in mundane tasks such as working arrangements, human resources, and day-to-day finances, and hence, end up paying the price for their disregard.

4. Poor Business Plan

The foundation of each thriving enterprise is a well-thought-out and practical business plan, which entails the company’s attainable objectives, necessary measures, and potential roadblocks. Through research and surveys, the plan will ascertain whether or not there is a market need, the costs and inputs required, and the strategies and deadlines that must be implemented and met.

When the business plan doesn’t sit well with the market conditions, the likelihood of business failure increases. Entrepreneurs either have to pivot or come up with new strategies.

5. The Bottom Line

Even though 20% of businesses fail in the first two years of operation, this does not mean you will. Being an entrepreneur, you can avoid many of the hazards of a new business through planning, flexibility, and good research. This will help you join the 25% of businesses that survive for 15 years or more.

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