Launching a startup is a risky venture, not in the least bit because of the myriad of potential roadblocks that new business owners can encounter during their entrepreneurial journey. Most of the available data out there will tell you that most startups are likely to fail. But why is this? Below are just a few common reasons for the collapse of such business ventures.
1. Running Out of Money
One of the most common reasons startups fail to evolve into established larger-scale businesses is simply running out of money. Inexperienced business owners may not realise how crucial it is to secure funding after initial investments have been made. Initial investments into startups typically come from owners’ personal savings, loans or lines of credit from financial institutions, and investments from family and friends. Many owners encounter a situation where these contributions run out or need to be paid back and they are not able to depend solely on existing profits to account for these debts and sustain business operations as their business is still in its initial phases. While self-funding is a viable option for some business owners, it is also risky depending on the scale of the business and nature of the product or service and it requires owners to take on all of the financial risks. As the owner of a startup, it is important to know your options when it comes to consistently securing funding for your business venture and deciding which option or options are most sustainable.
2. Not Adding Value to the Market
Some owners neglect to do their due diligence when it comes to market research and launch their business not realising that their contribution to the market is minimal or non-existent. When there is no market need for your product or service, there is no business. Important factors that need to be considered when starting a business venture are market demand, market value, and competition. Is there a demand for your product or service? Does your product or service provide a remedy for an unattended problem that consumers experience? Does your product or service fill a gap in a particular market or improve upon existing technologies? Are you introducing a product or service to areas that otherwise lack access to such products or services? These are questions that need to be asked in order to evaluate what your startup actually brings to the table.
3. Legal and Regulatory Challenges
Many startup owners don’t seek legal counsel or do extensive legal research before starting their business and for many, it means encountering legal or
regulatory problems due to unintended violations down the line. This can spell the end of a business venture depending on the severity of the violation and the ability of the owners to resolve it. Common legal and regulatory issues ignored or overlooked by the owners of startups involve taxation, legal business registration, and state licensing. Not understanding your legal obligation as a taxpaying entity, failing to appropriately register your business or decide legally what the role of founding members are in the business and what each party is entitled to, or not understanding the licences, permits, or permissions that your business needs to carry regarding the nature of your product or service, can all have disastrous consequences for the business
4. Poor Quality Product or Service
It should go without saying that ensuring the quality of your product or service is essential to the viability of your business but blunders are still made by startups and established businesses alike. When launching a new product or introducing a new service to the market, not ensuring that the product functions well and as advertised or, if it's a service, not having the resources, qualifications, or evaluative processes to meet service quality expectations can result in profit loss as well as the degradation of your brand. Quality control is crucial to be able to serve your customers well and maintain a brand image that inspires trust.
5. Lack of Online Presence
A lack of online presence is a mistake in today’s modern world. When consumers are searching for specific products or services, the first place they often look is to the internet because of its convenience. If your business lacks an online presence, then you’re actively losing customers to those businesses that appear in the search results in search engines and online applications when consumers scour the internet for solutions to their problems or entertainment. Not investing in social media marketing, online content marketing, or online ads is also likely to put you at a disadvantage for similar reasons. Added to all the aforementioned problems is how foregoing such an easy way to connect with your target audience and existing customer base, does nothing to build your brand’s reputation and increase brand awareness in the public eye. You’re also missing out on generating more sales by eliminating the option for consumers to make queries or purchases online and requiring them to leave the convenience and safety of their homes to patronise your business. This is especially relevant due to recent global health crises that have resulted in greater restrictions on travel and physical movement.
6. Bad Location
For businesses with physical locations, a bad location can significantly impact the amount of profit you are able to make by limiting customers. What’s a bad location? It can vary depending on the nature of your business but there are some common things most businesses have to avoid. One of those things is a hard-to-reach location. If customers cannot easily access your place of business due to natural terrain that is hard to travel, a highly congested area, limited parking or vehicle accessibility, lack of disability access, or being located in a sparsely populated area that is a considerable distance from most potential customers, then it’s likely that visits will be infrequent or otherwise limited. Another thing to avoid is a dangerous location. Whether the danger is from people, nature, or infrastructure, most consumers will not risk life and limb to get to your business if there are safer alternatives. Yet another example of a bad location is one where your visibility is substantially decreased. When your location or signage is not easily viewable by the public, hard to find on a map, or overshadowed by a physical presence in your area, it's inefficient for attracting new customers and guiding new ones.