Starting a new company, as thrilling as it may seem, is not an easy task. Very often, entrepreneurs make some mistake that eventually leads to the downfall of their company. We spoke with the SFC Capital team to find the most common reasons why startup businesses get in trouble and eventually fail.
1. Wrong business model
Having a good idea is not the only requirement for building a successful business. A business model is crucial to know where the company is. Developing a poor business model therefore, can lead to targeting the wrong audience or setting the wrong goals. The ability to adapt the business model or pivot the focus of the business in the right direction could be a lifesaver.
2. Slow reaction time
The key to building a successful company is being able to respond to the external changes. Through knowledge and constant monitoring, entrepreneurs are able to react quickly to the ever-changing competitors’ actions and markets. If they don’t, the business owners are very likely to make rushed, illogical, or irrational decisions that will endanger the company.
3. Reluctancy to hire experts
Very often, entrepreneurs are reluctant to admit they should better hire an expert to take over a part of their job. In an effort to keep costs low and close control over every aspect of the business, founders tend to overlook the fact that putting experts on a specific category or segment of the business, could lead to great success.
4. Spending money too quickly
No matter how appealing it may seem, entrepreneurs should withhold themselves from spending their investors' money all at once. Not only will they have nothing to rely on in financially troubled times, but also investors will lose trust in the owner and will think twice before giving them a substantial amount of money again.
5. Internal conflicts
Internal arguments are never fruitful for the company’s workings. Not only will individuals be distracted from the startup’s operations and vision, but they will also feel demotivated by the poor work environment. Needless to say these struggles could lead to the failure of the business in the long run.
6. No market for the product
It goes without saying that in order to sell a product, a business needs people that are willing to buy the product. No buyers means no cash, and no cash means no funds to continue operations.
7. No focus on revenues
Many entrepreneurs are focused entirely on product development and they lack commercial drive that will let them get this product in front of potential customers. Sometimes it’s a fear of selling, sometimes it’s a belief that only the perfect product can make it. A startup becomes a real business with real sales, even if the product still has to improve.
8. Wrong fundraising strategy
Inexperienced entrepreneurs with ill or no professional advice might make errors while looking for investment. This includes a number of things that can directly or indirectly lead to failure: raising too little or too much, setting up the wrong valuation – which can make next funding round impossible and lead to lack of financing –, and attracting the wrong investors.
9. Too much time spent fundraising
Even though fundraising is essential for startups, entrepreneurs shouldn’t lose sight of what is most important: selling their product. In order to do so, they have to spend time developing and refining idea and generate customer awareness for their product to sell. That way, they can generate revenues and avoid competitors sweeping in and gaining market share.
10. Arrogance
The last but not least reason why startups fail is the arrogance of some entrepreneurs. Very often, they are too proud to seek advice from experts. In doing so, they risk taking uninformed decisions which can have a negative effect on the success of the business.
Although being the founder of a startup will always come with ups and downs, taking notes of these ten ideas will put you several steps closer to building a successful company.
By Charlotte Lowel and Chanelle Allen
