Starting a business requires much
more than a good business idea and capital. An aspiring entrepreneur also needs
to assemble the right team and prepare adequately for competition and
unforeseeable expenses. The unexpected expenses include bad debts, loss of
market share and untimely staff resignation. According to Small business trends, just slightly more than 50% of all startups survive beyond
four years.
Even with these statistics, small businesses continue to be the backbone of the
US economy as they employee tens of millions of people. These businesses
include; law firms, dental offices, cleaning services and warehouse and storage
services. To achieve long-term success, startup companies must know the common
pitfalls and how they can overcome them. According to entrepreneur coaching
site Forentrepreneur,
here are the 5 main reasons for startup failure:
1. Market challenges
For a going concern, market challenge is primarily manifested by lack of market for products or services being offered. This can be as a result of the following key reasons:
• Poor market timing – poor market timing can cause serious problems to any upcoming business venture. In some cases, a business may be forced to postpone the release of a product or look for a different solution altogether.
• Lack of compelling value proposition – buyers often need a compelling value proposition in order to make a purchase. If this is lacking, the product or service may go unsold.
• Access to small, unsustainable market – investing in a small market with insufficient demand is another big market concern. Businesses operating in such markets often struggle to stay afloat.
2. Failure of the business model
When starting a business, it is highly critical to analyze the business model you want to use to achieve success. Most startups fail because the owners are being overly ambitious and unrealistic. New businesses should be careful to balance between the Cost of Acquiring Customer (CAC) and the Lifetime Value of the Customer (LTV). The CAC should always be lower than the LTV to ensure profitability. CAC is calculated by adding the entire cost of sales and marketing divided by the number of customers accrued over a given timeframe. Successful businesses are able to recoup CAC within 12 months. Besides the acquisition cost and monetization, the business model should also be sufficiently scalable to accommodate more customers.
3. Weak team
Placing a weak team in charge of a business proposition and supervision can prove very costly to any business upstart. Some of the mistakes to expect include weak strategy and poor execution. A poor strategy can lead to the creation of a bad product that no one wants to buy. Poor execution, on the other hand, can lead to poor product development and market execution. Making the same mistake in the hiring process can easily lead to poor workmanship.
4. Low cash reserve
Startups are predisposed to various cash problems; among them is running short of cash. A company lead or CEO is supposed to know how much money the company needs to operate seamlessly while ensuring a positive cash flow is always maintained. A startup can grow its valuation and ensure it stays on the right course by achieving the following key milestones.
• Advance from seed round of valuation – this initial milestone can be achieved by eliminating the main risk factors and impediments to growth. The best place to start is hiring the right people and creating a prototype that can be presented to the audience to gauge their reaction.
• Having a Beta tested product and achieving customer validation – customer validation should be sought at this stage as it will help assess how the target market will receive the product.
• Initial shipping orders – during this initial shipping trial, a startup needs to have a list of paid up customers. When the customers receive their orders, any positive feedback from them can go a long way to signal product readiness and market success.
• Choosing a proven business model – once the business has shown the potential and capacity to attract buyers, the business model should be articulated to achieve the right scaling for expansion. On the back of positive monetization, the cost of acquiring customers should be held at a lower level to guarantee profitability and meaningful growth over the long-term.
5. Problems with the product
The other major reason why startup companies flop is failure to develop the right, in-demand product. This is essentially a product that doesn’t meet the needs of the consumers. The problem may arise because of poor execution and failure to achieve market fit. Fortunately, or not, most initial products from startup ventures face difficulties achieving the desired market effect.
For this reason, business owners can use this opportunity to improve their products and ensure they achieve the desired fit. In case the market reception is resoundingly negative, a complete product overhaul may be suggested. To get things right, the production team should try to get customer validation in various stages of production, i.e. before and during product development.
Conclusion
The failure of a startup company is tied to many things, from lack of market need and cash to the use of ineffective marketing strategies and poor timing. Startup companies that wish to succeed must work out ways to overcome these overbearing challenges. Choosing well-researched, customer centric solutions often guarantees a win. Fazt Tech is one of the companies at the forefront of propping startup companies to achieve market success.
The tech manufacturing and licensing company is committed to delivering high quality service to its growing customer base. Fazt Tech clients come from various industry backgrounds, including manufacturing, retail, banking, education, eCommerce and telecommunication industries. Since its founding, the Illinois based company has been operating on a principle of delivering quality service that matches the evolving demands of the tech industry.
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