5 Reasons Why Start-Up Businesses Fail

Launching a start-up does seem like an exciting business proposition when you are sitting on the sidelines of...

  • 5 Reasons Why Start-Up Businesses Fail
    Manish Khanna Image Manish Khanna

    5 Reasons Why Start-Up Businesses Fail

    Launching a start-up does seem like an exciting business proposition when you are sitting on the sidelines of the entrepreneurial territory. Every ambitious and motivated individual is drawn towards the hottest market segments to make the most of the industry-specific boom before it goes bust. Businesses keep emerging and failing, and this is the norm of the capitalistic economy which works on the principle of survival of the fittest. The risk of failure is quite high among start-ups, though the picture is not rosy for established business either. Most small businesses fail to make it past the five-year mark, even if they manage to sail through the first year successfully. It does not mean that entrepreneurs have become wary and are not giving shape to their business ideas. In fact, at the beginning of 2017, there were 528,170 businesses operating in New Zealand, which was 23% up from the previous year. However, start-ups are feeling the heat in the country with the failure rate for small businesses reaching 48% during 2010-2016. Keeping the risk factor in mind, it is a better idea to invest in an established business for sale in New Zealand rather than going the start-up way.

    The level of competition and diversity in the small business sector is quite high, and it is the driving factor of the economy. Though New Zealand is considered to be the best country for setting up a business without any hassles, the process is still challenging and involves risk. Failure is a harsh reality which looms large over the heads of individuals planning to put their money into a venture. The reasons for failure are many and they are a global phenomenon. Business owners can give details of the umpteen challenges which keep pulling them down during the business lifecycle. Ultimately, the venture reaches a stagnation point from where the road ahead seems dark and gloomy. The recurring difficulties, if not addressed in time, can lead to the shutting of the doors without any warning signs. Few are able to get out of the stormy waters with the help of others or through their own shrewdness. However, the majority falls prey to the failure trend that has engulfed start-ups all over the world. Let us look at the five most common reasons that lead to the failure of a start-up.

    1. Lack of Market Research

    Most driven individuals come up with an idea and do not take into account its relevance and resonance among the target audience. They forget to conduct market research to find the gaps in customer satisfaction and provide solutions to fill them. Often, what most start-ups offer is already present in the market or is not required at all. They just roll out the product and wait for the money to pour in. However, their hopes are dashed to the ground when it fails to meet the expectations of the customers. Also, consumers are cautious about trying products that come from a start-up and opt for competitors which have a recognised presence. The only way out of this situation is to offer a unique selling proposition that cannot be matched by others.

    2. Shortage of Money

    In comparison to established businesses, it is extremely tough to secure financing for a start-up. Most angel investors and venture capitalists would not be interested in investing at the seed stage of the business. Banking institutions will be even stricter about the feasibility of the business plan and would reject the loan at the drop of a hat. Also, if a start-up can manage funding for the initial months, the owner needs to put a cap on the expenditure and be judicious with the budget. Soon the seed funding would get exhausted, and the break-even milestone would be still far ahead. Maintaining a steady cash flow can be a challenge, and the lenders will be after your life to collect the debts. That is why the business owner must spend economically and network with investors to keep raising capital or chose a business which can be operated with limited resources.

    3. Incompetent Human Resource

    While setting foot in the entrepreneurial fray, most newcomers forget that they need to build a capable team and lead them to work as cohesive partners. The struggle to find the right people for the defined roles and tapping their full potential is real for a new business owner who is occupied with ten other tasks on a daily basis. A competent leader has the zeal and personality to motivate his/her team and make them work towards the common goals while developing and improving individually. In a start-up, the need for such motivation is imperative because the number of employees is low and the morale is down due to work pressure and tension of acquiring new clients.

    4. Fierce Competition

    The competition is always high in sectors that are going through the growth stage. Much like the IT boom which made most engineers quit their jobs and launch their tech start-ups. Staying afloat in such cut-throat competition is tough as the stakes are high. From large conglomerates to small and medium-sized enterprises, all are vying for the same share of the market segment. In the rat-race, the small fish usually get killed by the smarter and bigger fish through the utilisation of their vast experience and wealth of resources. It is essential to know the competition and read the threat signs to make changes in your business policy to avoid getting out-competed.

    5. Ignoring Customer Feedback

    Typically, a new business owner launches a product in the market and wants the customers to buy it. However, the game does not work according to their rules. The business needs to connect with the target audience and consider their feedback through surveys, emails, telephonic conversations, and face-to-face networking. It helps in understanding their response towards the products and how the offerings can be improved. In an ideal situation, the start-up must create a low-cost prototype and get it tested among focus groups to figure out the gaps and come up with the best version to be introduced in the market with a bang. This reduces the chances of failure of the product.


    Endnote

    No one can offer a peek into the future to predict the prospect of business. However, start-ups are always seen as a risky affair and can take away a lot from you and your family. Thus it is a wiser decision to look at other potential avenues like purchasing a business for sale in New Zealand to avoid such pitfalls that can ruin your dreams of entrepreneurship.

  • Author Info Manish Khanna

    Manish is founder of Business2sell Group of Websites. 

    Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities. 

    With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent. 

    I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.