It should come as a surprise to absolutely nobody that a lot of startups fail every year. When you begin to break things down by statistics, however, they paint a much more harrowing picture than you probably realized.
According to a study conducted by Forbes, nearly 90% of all startups – or roughly nine out of ten – will fail. That rate is highest during the essential first two years of their life cycle, where only about 66% of all companies will make it across the finish line.
If you extend things another two years, only 44% of those that remain will still be in existence. Things continue similar patterns from there. Finance insurance and real estate, agriculture, construction, information – the industry you’re talking about doesn’t matter.
The good news is that while a lot of startups DO fail, they don’t necessarily HAVE to fail. It’s not destiny – it’s the simple matter that people keep falling into the same key traps and making the same mistakes time and again.
Getting to know and truly understanding the top five reasons why nearly all startups fail today is one of the keys to making sure that you don’t find yourself among this statistic in the future.
1). A Product in Search of a Marketplace
In a piece published by Fortune, it was revealed that the number one reason why most startups fail is also perhaps the most simple: they’re making terrific products that nobody actually wants to buy.
In a comprehensive survey, it was revealed that an incredible 42% of startups that failed had not actually identified a market need for their product.
2). They’re Not Telling the Right Story
Along the same lines, another one of the major reasons why startups fail is because they’re just not marketing themselves, their products or their services properly. This goes far beyond the startup pitchdeck – from the moment a startup opens its doors, it needs to grab hold of its own internal narrative and broadcast it to the widest possible audience.
Startups should be using a wide range of different materials, like presentations and Infographics, to convey to the world who they are, what they want to do and why they want to do it. Tools like Visme (which I’m the founder of) can be essential during this time, crafting compelling visual content that speaks to the right people in the right ways.
A presentation tool like Visme isn’t just a way to create great collateral – it’s a way for startups to bring their audience into the fold, building anticipation and helping to use the narrative power of storytelling to their advantage.
3). Cash Flow Problems
Another one of the major reasons why startups fail is also a frustratingly simple one: cash flow. In the study reported on by Fortune, this was responsible for approximately 29% of all startup failures – coming in ahead of even things like product timing and pivoting gone bad. Entrepreneurs who feel the need to do it all themselves tend to fall into this trap most often – they become a jack of all trades, master of none. It is imperative that people bring on real experts in terms of cash flow to generate the type of visibility they need to sustain the growth that their startup demands.
4). They Don’t Know How to Recover From the Setbacks
Just because you’ve launched what appears to be a successful startup doesn’t mean you’re immune to failure. Any entrepreneur will tell you that failure is a way of life. Avoiding it is not the key to long-term success – recovering from it is. As a result, startups need to be versatile and those who aren’t – those who are unable to recover from minor setbacks by pulling the team together, will often find themselves unable to make it through those tough times. This is something that happens most often to people who are new to the world of startups in particular.
5). They Ignored the Customer
Let’s say that you were able to avoid the trap of releasing a great product or service that nobody actually wanted. If you put something into the world that people are clamoring for, but you ignore what they’re telling you about what it should be, you’re looking at another one of the most common reasons why nearly all startups fail. Startups should not ignore ANYTHING – chief among them being their marketplace.
This often leads to a variety of other issues, from a general lack of focus to a mis-timed product to poor marketing, a lack of passion and beyond.
Marketing collateral is another great way to avoid this trap altogether. Presentations and Infographics aren’t a one-way communications medium – when used properly they can be a great way to open a dialog with a target audience, to illicit feedback and to make sure that you’re always focusing your efforts in the right direction at the right moment.
The Long, Hard Road to Success
Despite all of this advice, a huge number of startups are going to continue to fail every year. It’s something that has been true for decades and something that will likely remain true long after we’re all gone.
Even if you’re successfully able to navigate these issues, you still have things like legal challenges, people who refuse to make use of their network or advisors and even good, old-fashioned competition to worry about.
But again: success as a startup is all about what you do when times get tough.
Problems are not a question of “if” but “when,” so the ultimate goal shouldn’t be to put yourself in a position to avoid them altogether.
That’s unrealistic. What you need to do is get ready for them. You need to learn as much about the challenges that you face as possible so that you can plow right through them, coming out in a better position on the other side BECAUSE of them.