There are tons of reasons for startup failures, and some are pretty unique. The challenges of each sector or even by the products mean some launches can be colossally expensive. But startup failures aren’t only down to money and funding. There are often more severe issues in play, and some are surprising to new business owners. For example, you can be hit with a dreaded cyber attack, copyright infringement notices, and even hire the wrong team.
Not Taking Security Seriously
Cybersecurity is one of the most critical parts of a new business. It doesn’t matter how small or large your business is; you are always a target. In fact, almost 50% of cyber attacks are committed against small businesses with less than 1,000 workers. Fortunately, getting help for cybersecurity problems is easier than ever. It is recommended that you always at least check it out since the fallout from a cyber attack can be staggering for even an established company.
CyPro, the cyber security experts for high-growth businesses offer complete security solutions against some of the most used and evolving complex attacks. Services like this also offer proactive security. However, security begins at home too! Your own network should be secured, and this can be as simple as using proper credentials, access control. You can also go a step further and specify Windows OS interactions using built-in tools such as group policies.
Financial Reasons for Startup Failures
Money isn’t the most crucial part of a business, but it is among the top. Support through financial means is the end goal, as money is needed to pay debts, wages and suppliers. You may not be a master of money, so here are some of the most common reasons for financial failure:
- Running out of money is by far the most common reason for a startup failure.
- You can also have a product fail spectacularly because of poor pricing models.
- A lack of investment interest can hinder a new business before it’s even started!
- It is possible to be undercut and outcompeted if you don’t get finance in order.
- Mismanagement of company funds is a problem for many new businesses.
Financial responsibility can be entrusted to a third party, or you can manage it yourself. However, you will be held responsible for anything that goes wrong. Therefore, it is always a better option to hire a reputable third-party service to manage your company’s money.
A Saturated Marketplace
Best estimates state that more than 30,000 new products are launched each year. However about 95% will fail. There are various reasons why this happens and a saturated marketplace is one of top ones. You may not want to hear it but there might simply be no need for your product! Trying to launch a new phone, for example, would be a bad idea. There is already so much choice for customers among established manufacturers that there is no need for a new one.
However, there is a workaround for a saturated marketplace. You have a higher chance of success if you can fill in a gap. A gap in the market can be hard to identify but is powerful. Using phones as an example, you would need to offer something that competitors don’t. For instance, Oppo saw some success because they offered 5G-ready phones at a fraction of the cost before the tech was even launched! This meant good sales and recognition against rivals like Apple.
Hitting Complex Legal Issues
Are you a legal eagle? Though not! However, if things go a certain way, you will become well accustomed to business law and the legal system! There are some very complex legal problems when it comes to startups, and you may never even see them coming. Here is a small sample.
Intellectual property and copyright issues
The big ones in business are copyright and IP. Names, logos and even processes can be claimed as copyright and IP. Ensure you use things with permission and do your research.
A misunderstanding of labour laws
Any good business wants workers to be happy. But there are laws around how you use employees. A competent HR team ensures your employment model stays above board.
Not meeting compliance
Compliance issues are specific to each sector. Breaching compliance and regulations will result in fines and harsh penalties that can all but shutter your business before it even has a chance.
There are numerous issues no startup wants to deal with. These include copyright and IP battles. However, your company must also stay within legal boundaries when it comes to employment. You also don’t want to be on the wrong side of a sector compliance dispute!
No Real Business Model
There are books filled with the reasons why new businesses fail. However, one of the most overlooked aspects is the business model itself. Around 19% of startups are believed to fall victim to their own models. But what does this actually mean? A business model is a structure that your company adheres to. It includes aspects of business such as pricing, sustainability and audience identification. It is sometimes sector-dependent and often audience-focused.
It can be hard to explain specific business models. However, an easier one to understand is the video game industry. The way games are designed, made and marketed has evolved over the past few years. Historically, the publishers and developers understood the market. It’s changed recently. But let’s take the traditional model. Games are traditionally aimed at white males, priced according to inflation and features and sustained using DLC and “microtransactions”.
Reasons for Startup Failures Include the Team
Believe it or not, the team can be responsible for causing a failure in business. You need a solid and reliable team in place, from the top down, who share the overall vision. But that’s not enough; the team also needs to be talented enough to carry the business forward.
How many startups fail because of the team?
As the third most common reason for startup failure, the team is responsible for around 23% of new businesses coming to an early end. This is why the right team is vital for your business.
Why is the right team critical for a startup?
Well, you need the right people who know what they are doing. The right team will help keep things running as they should through innovation, productivity and even company culture.
Where can I find the best team for my startup?
There are a few ways you can find the right team. One of the most powerful is reaching out to investors who know how to find people already. It helps to take your time when recruiting, too.
Money isn’t everything in business, and there are other unique aspects that contribute to overall success. This includes the right team. Any investors you know are experts at selecting teams that can help shape a startup into something successful in a world with increasing competition.
It’s All About Timing
It is well-known that around 90% of startups fail within the first year or two! That is a lot of new businesses. What most people fail to grasp is that there is an element of luck. You can get lucky by launching the right product at the right time. However, for many successful companies with something to offer, a lot of research goes into timing the launch. The difference between a hugely successful product or service and one that flops can be the time it is revealed.
There are several reasons why timing is vital. First, there is no point in launching something when there is minimal demand. This is where understanding the target audience becomes critical. You can also be a victim of your own innovation! Think about the iPad. Its launch came naturally after the iPod and iPhone. But there were other similar products that came before. The difference is that people just weren’t sold on the idea until they had gotten used to the tech!
Summary
A lack of cybersecurity is one of the top reasons for startup failures today. There are also legal issues like copyright and IP that can get in the way. However, you can also get the timing wrong.