5 Reasons Why Startups Fail

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You're an enthusiastic entrepreneur ready to take on a new business venture and can't wait to get started and fulfill your dreams of success and fortune. Of course, you have no way of knowing the numerous challenges that you will encounter, and you’re fully aware of the statistics that threaten startups: 20% of startups fail during their first two years of operation and 55% of all businesses don't survive past the fifth year.

The good news is you can learn from those who have successfully and unsuccessfully launched businesses before you and avoid many of the common small business mistakes that add expense, time, and stress to your journey—and could even destroy a new business before it gets started.

Learn the top five reasons why startups fail:


1. Lack of a Business Plan

It’s been said that if you fail to plan, you’re planning to fail. Nowhere is that truer than in business, where a comprehensive business plan is a necessary road map for business success. Even the smallest ventures need thoughtful planning and effective management to be successful, and studies show that entrepreneurs who write formal business plans are 16% more likely to succeed.

At a minimum, business plans should include a description of the business, its mission statement and goals, a market analysis, marketing strategy, and full financial data—including projected costs and revenue, funding plans, and a disaster recovery plan. 


2. Not Conducting Market Research 

Don't fall into the trap of starting a business without performing market research. 

Another reason why startups fail is because they neglect to take the time to understand the potential market or customer makeup and, instead, rely on their limited knowledge without paying enough attention to the realities of the existing market.

Market research gives insight into what consumers are looking for and how to reach them. Building a great product or service doesn’t necessarily mean success. Without market research, many startups may find themselves focusing on a market that’s too small to build a big business in or they never really identify their key target audience and, unfortunately, never connect with them.


3. Underestimating Capital Needs

Business funding mistakes account for more business failures than almost any other area as many entrepreneurs think they can get further with less and plan for the best-case scenario. The truth is that 38% of startups fail because they run out of cash

When it comes to financing your business, find the option that suits you best. Consider SBA, bank loans, private lenders, or the right financial partner to back you up. Most importantly, keep track of your capital and always be in full control and aware of your finances. 


4. Not Investing in Marketing

For whatever reason, many small businesses are reluctant to spend money on marketing or they invest in the wrong channels, mainly because they don’t see immediate results or know how to analyze the data. People often take it for granted and don’t optimize its potential.

Developing a marketing plan allows you to apply your market research and plan your marketing activity around your target audience. Your marketing is your company’s story and message to its customers. Take the time to know exactly what you want to say about your company and your staff and make sure it is communicated in the tone and intensity you intend.


5. Doing Everything Yourself

A successful small business is not built by one person alone. The business of business is relationships—and lots of them. A mistake many entrepreneurs make is trying to start and run their businesses on their own and not surrounding themselves with the people necessary for success.

Certainly, as a small business owner, it is up to you to leverage your strengths, but it is also necessary to surround yourself with people who can supplement your weaknesses. That’s why you develop an internal team composed of certain talents and specific skills and assemble trustworthy advisors and partners externally who can also lend their insights and experiences.


Avoid Common Small Business Mistakes With Franchise Business Ownership

One major way of avoiding startup mistakes, including those listed above, is to pursue the avenue of investing in a franchise business as a way to increase visibility and reduce the failure rate of your new business.

With franchising, a business model has already been established and market research has been done, transparent capital requirements and funding options are clearly communicated, national brand recognition has been built, and a family of brands is available to support you. The franchise motto is to "be in business for yourself, but not by yourself."

If you have ever found yourself wrestling with the decision to pursue owning your own business, but are leery of taking the leap, franchising may be an option you haven’t fully considered. Download the Neighborly® Franchise Guide or contact us to identify the franchise best suited for you and how you can get started today.