Common Reasons why Startups Usually Fail

According to data from various organizations such as Barcelona Activa, the Caixa XXI entrepreneurial program, Start up Chile, among other organizations specialized in creating new ventures, the failure rates of new companies worldwide are heartbreaking.

Despite the fact that the figures vary slightly depending on the country, the statistical average says that:

8 out of 10 new SMEs fail before their 5th birthday. And only 1 in 10 manages to survive more than 10 years.

The truth is that it is the most discouraging data for any entrepreneur or for any SME that is entering the market.

Why Are The New Companies Failing?

The reasons why the failure rate of new companies is so high varies totally:

The businessman blames the closure of new companies on the crisis, the markets and the macroeconomic environment: politics, legislation, official financing.

Management, business and marketing experts believe that the reason for these figures is due to the lack of planning and knowledge of entrepreneurs.

Obviously, and in our opinion, the 2 visions have their part of reason. So we wanted to analyze the reasons that, in our opinion, are the cause of most new businesses closing their doors before they turn 5 years old.

That is why, whether you are going to start your own company or if you have already started it, you will surely be interested in knowing some of the most common and at the same time most decisive mistakes made by the majority of failed entrepreneurs, SMEs and Start Ups.

My idea is the best:

When we have an idea that we think is great, we usually jump into thinking about how to develop it. But many times we forget to analyze if that idea is unique or if there are 200 more entrepreneurs who have already had that idea and are developing it.

Another common mistake of entrepreneurs is to believe that our idea is good and that it will work only because our friends and family like it. Our friends and family can help us in decision making, but we must bear in mind that they are not objective, and that they are probably not our objective or potential audience for our business.

So to convert an idea into a successful business, the most advisable thing is to do a preliminary market study, since it will help us optimize our resources and our efforts on those ideas that are truly unique, original and that satisfy the real needs of our potential consumers. In addition, this type of study will give us very important guidelines for evaluating the profitability of our project. Everything is in my head: Many entrepreneurs have great business ideas, but they work intuitively and forget that this idea needs to be profitable. They have the business project in their mind and obviate the importance of studying it thoroughly and writing it down on paper and pencil.

To really analyze the viability of the project. We must not forget that to calculate the viability and profitability of an idea it is necessary to plan step by step everything that has to do with the creation, development and implementation of that business. The best way to “ensure” the viability and profitability of our project is making a business plan, better known as business plan and their marketing plans and communication plans on and off line. Without this type of business outreach study, it is very likely that our project will end up increasing the statistics of failure.

The story of the milkmaid:

On some occasions, when we make our business plan, or company plan, we accidentally follow the story of the milkmaid: we decide on an initial investment that we do not have, that we are not sure that we will be able to obtain and that we do not know when we will be able to amortize or monetize. It is very common to launch business projects counting that “they will give me a credit of XX €”, that “I can ask for a mortgage of XX €”, that “I can ask for a grant or aid of XX €”, etc.

However, launching with assumptions is a very dangerous exercise, because they do not always give us the credit or subsidies that we have calculated. And if our entire project has that injection of financing, it is very likely that we will fail. For this reason, it is necessary to go with the lead and really have that internal and external financing that is already secured. Searching for business angels can also be a good option to boost the financing we need.

Undertaking with my enemy:

Another common mistake of entrepreneurs, SMEs and Start-ups is through the choice of project partners. From choosing a partner X only because it provides me with the necessary capital, without taking into account that by making him a partner his opinion, criteria, tastes and evaluations will mark the future of the project and that it is very likely that our ideas and our way of doing will have to have your approval and consent. Until dividing the company in equal parts without taking into account that not all the partners will participate in the same way, will contribute a work of similar value or that will be involved in the same way in the decisions and actions of the company.

Our partners must share the same vision and the same values ​​and their participation in the company must be subject to their contribution and involvement.

Being “Todoists”:

Many entrepreneurs, to avoid allying with partners or to avoid external financing, decide to be “Todoists” and do absolutely everything: from ideation, planning, and implementation.. But pulling the popular proverb we find a great truth, and it is that “he who embraces much, little presses.”

Therefore, it is very important to know how to delegate and surround yourself with those people you trust who complement our knowledge and capacity. The option of being a “todoist” is usually linked to the budget and to very limited financing. But for this reason, we can look for other options that allow us to delegate work to professionals and, at the same time, do not suppose a great initial investment. In these cases, we can always consider bartering jobs with other companies. Thus, in addition to ensuring that we have the professional help necessary to launch our work, we can create synergies, expand our portfolio of contacts, publicize our business, etc.