Three Big Reasons Startups Fail

Legally and theoretically, it doesn’t take much to start a business. You have an idea, you file to open a company with the right legal entity in your state/country, you open a bank account, and you’re basically in business. This, however, has no indication of business success, longevity, and the point all businesses go through where they wonder whether they’re going to make it. For example, in the restaurant industry it is recorded that 92% of new establishments fail within the first year of opening. Why is this? Market saturation, location, marketing, seasonal appeal, and of course, the food and service quality all can be listed as reasons for why a restaurant business may not be fit to make it past the first anniversary. In the case of startups, there are many reasons that a business will fail, and though these twenty are all valid, there are three main ones that we think are absolute deal-breakers for customers, and we have more to add to the conversation: 

  1. User un-friendly product: over 17% of the post-mortem reports evaluated in the CB Insights report listed their product not being user-friendly enough as a reason for the failure of the business. This is an issue we run into often when we assess the digital maturity and compliance level of our prospects, who often times need to rework much of their front-of-house platforms because they don’t have the most user-friendly features. As we’ve mentioned before, when a prospective customer is using your system for the first time, especially on an onboarding capacity, over 50% of the prospects will give up and drop off on the process if it’s not intuitive, fast-enough, or if it’s asking for too many external confirmation methods. This carries over for other processes in the chain, where if your customer gets frustrated enough with the lack of usability of your software or product, they will leave you behind as soon as they find a next best option, which is not hard to do in the current oversaturated market. 
  2. Ignoring customers: as much as you’d think it’s redundant for us to continue talking about the importance of keeping customers at the center of your strategy, you’d be surprised to find out that about 14% of the failed businesses studied listed this as such a high-ranking reason for why they went out of business. The thing is that this is probably not as harsh as it sounds. No company should be forcefully and purposefully ignoring customers, or they definitely deserve to not be in business any longer. The more likely scenario is that companies get feedback from their customers and they don’t put it into action, which the customers see as a disinterest in their patronage, so they end up leaving to a better provider. Taking your customers into account should be your approach every single time you’re bringing a new facet into the business. How do you make it happen? Through focus groups, beta testing, surveys, etc. but most importantly, by leveraging our recommended approach to redesign your processes from scratch, and not just keeping everything as you had it, just turned “digital” for the sake of digital. 
  3. Didn’t use network: this is another point we preach about constantly, because if the saying goes “it takes a village” to raise one child, imagine how many hands and brains should be involved in order to guarantee the success of a business. The sayings are endless: “If you want to go fast, go alone. If you want to go far, go together.” The point writes itself. Though in the piece with the post-mortem reports they focus a lot on the downfalls due to not leveraging the investors, we always like to emphasize the importance of having a good ecosystem and using it to its maximum potential. You don’t have to lift your business from the ground up alone, there are countless ways in which you can get trusted advisors or even additional working hands on board through staff augmentation, or otherwise. Whatever makes sense for your business, but make it happen. 

We see startup failure more than we want to, and we want to ensure as many business leaders as possible are privy to the pitfalls for startups and how to avoid early failure at all costs. Startups and SMEs are the backbone of local economies, they create jobs, and they keep a level playing field when it comes to creating a healthy competitive environment with lots of options for customers to choose from. If your startup seems to be having trouble in any of these areas, don’t hesitate to contact us so we can help you avoid these obstacles and get you set up for a steady rise instead.