Around 90% of startups in Europe fail within the first couple of years, but why? How do you prevent your startups from failing by overcoming the main difficulties in the race to disrupt the world as we know it?
Here are a few reasons why most startups fail:
1. Not having the right team. A report from the Chartered Management Institute (CMI) found clear links between poor management and startup failure. A similar study performed in 2011 on UK-based SMEs from the Office for National Statistics (ONS) showed that 44% of new businesses fail after three years, as a result of an incompetent workforce or poor management. Correspondingly, lack of team chemistry should be tackled first; startups who lack the right skill set will have a difficult time conquering challenges that startups tend to face on a daily basis.
2. Lack of market knowledge or improper marketing. Startups have little to no choice when it comes to spending revenue on outbound marketing activities. However, just throwing money into marketing and not thinking about the appropriate distribution channels may be ineffective. Therefore, knowing how to market your product appropriately is perhaps more important than the amount of money spent on ads. A good starting point is making sure you understand the positioning and message of your product as well as your target audience. This is a core principle that many startups fail to grasp, leading to unsatisfactory marketing results (Forbes, 2019).
3. Inability to raise capital. Raising capital is crucial for many startups to help fund their MVP and day to day activities. However, a large number of startups enter the market without being able to source a lead investor. A lead investor acts as a proof to other investors that it is worth investing in your startup and the inability to find a lead investor increases the probability of failing to secure fundraising for you startups significantly (Seedrs). One way to increase your chances of securing funding is to make sure you have a good business plan, as it displays a solid foundation for your startup to investors.
4. Focusing only on building and not on your customers. “Around 42% of startups fail because there is no market need for the product” which is often a result of poor marketing research (CB Insights, 2018). Two common reasons why startups fail to find a market are either that the market is too small, or that your product fails to deliver enough value to make people want to buy the product. Therefore, it is important to have feedback loops in place and engage with your customers to make sure you’re moving in the right direction.
5. Getting outcompeted. The main reason why startups get outcompeted is the lack of knowledge in their own market when it comes to competition. 19% of startups fail as a result of ignoring or not being aware of the competition (CB Insights, 2018). Startups have to find a way to stay up to date with the competitive landscape, in order to anticipate any unforeseen trends which may lead to their demise.
6. Running out of cash. The largest cities in Europe such as London, Berlin and Paris tend to create the greatest number of startups due to the enormous opportunities to scale business operations (EU Startup Monitor 2018 Report). However, as money and time are finite, around 29% of startups fail due to the lack of cash and a huge number of startups cannot afford to pay their rents, wages and other expenses (CB Insights, 2018). Therefore, a large number of startup fails as they cannot keep operating with expenses exceeding cash inflows.
Was there anything we missed? Or maybe you’d like to share your own startup story? Feel free to comment on or share this post!