5 Reasons Why Startups Fail
Starting a business is an exciting venture. However, around 20% of small businesses fail within their first year and 50% fail within their first five years.
Here are some of the most common reasons that small businesses fail:
Lack of Capital
According to a CBInsights poll of 101 startup founders whose businesses had failed, 29% had failed because they ran out of cash.
In addition, most startups fail to secure additional funding. It is difficult for startups to qualify for most forms of business funding due to a lack of business credit score and business history. If your business is also struggling to make ends meet, lenders will consider you too risky for funding.
No Market Need
42% of small businesses reportedly failed because there was no market need for their products or services. This is by far the most frequently cited reason for why startups fail. The lack of market demand prevented these businesses from gaining the necessary traction to survive. In such cases, entrepreneurs had conducted inadequate market research which led them to misunderstand the wants of their target audience and create a product that not enough customers wanted.
Bad Location & Online Presence
If your business relies on foot traffic to generate revenue and is set in a bad location, it is obvious that your business will not last. Placing an Italian restaurant, for example, near a well-known spaghetti joint and an Olive Garden will likely result in less customers for you initially. The location of your business, whether in a commercial district or the suburbs, will determine the long-term viability of your business.
While e-commerce businesses do not have to worry about physical locations, e-commerce still comes with the hurdle of managing your company’s online presence. An e-commerce business with a weak web presence will quickly fail because there will not be enough awareness of your business. Your business needs to make sure they can reach an audience who needs and wants your products/services.
Underestimating Marketing Expenses
While there are free marketing tactics, such as social media marketing and cold calling, small business owners often underestimate the total cost of an effective marketing campaign. Marketing is crucial to let customers know that your business exists and failing to have an effective marketing strategy also means the failure of a new business. 14% of small business failures are due to ineffective marketing.
New small businesses have to constantly monitor and adapt to the current market conditions. When the market changes, your business will need to pivot accordingly to avoid failure. By constantly being aware of the key trends in your industry, you will give yourself sufficient time to adjust your business strategy and prolong your business longevity.
Accel Business Funding has many different funding options for all businesses and funded many businesses for more than $380 million. When banks say NO, we say YES to funding in 24 hours!