If there’s one thing that entrepreneurial-minded people hear all the time when discussing a new endeavor, it’s the harrowing fact that most startups—and the entrepreneurs who found them—end up going under. In fact, about 90% of startups fail, so to say that this is a common phenomenon is certainly an understatement.
This incredibly common outcome does not result from a uniform weakness across entrepreneurs and industries. Instead, there are a plethora of reasons—some more prolific than others—why an endeavor may end up fizzling out or a business is forced to shutter. It would take forever to list every reason that an entrepreneur or startup failed in the past year, let alone historically. However, understanding the most common reasons entrepreneurs fail may help you plan accordingly, strategize, delegate, and ultimately avoid the same fate.
The Most Common Reasons Entrepreneurs Fail
Cash Flow and Lack of Capital
A common cause of failure in entrepreneurs and startups is a lack of cash flow and/or capital. It’s a straightforward reason and one that feels entirely preventable in hindsight, yet many entrepreneurs fall prey to this trap. Sometimes a great business can fail before it has even had the chance to get started simply because there wasn’t enough money to sustain operations. Even a well-thought-out business can have unexpected hurdles or obstacles that require agility, and without capital, it’s incredibly hard to adapt to the unpredictable landscape of startup life. It takes a significant amount of capital to operate a business, and even a lean business will require reasonable cash flow. When access to capital isn’t available, entrepreneurs tend to fail.
Timing is yet another common reason why entrepreneurs fail. More specifically, being too early to market can mean imminent doom. This isn’t universal, of course. Being early to market can certainly have its benefits if handled properly. The problem is that handling things properly is much easier said than done, and if you’re too early to market—and burn out or run out of money before your business takes off—then you will have provided a roadmap for a future entrepreneur to capitalize on your failure and succeed with better timing.
Doing things yourself can seem tempting, especially if you’re strapped for cash. And even if you’re not strapped for cash, you may want to save money just because you can. But most age-old phrases are age-old for a reason, and that reason is that oftentimes you really do get what you pay for. Paying for cheap solutions to your business problems—or worse, trying to solve them all yourself—is a recipe for disaster.
Sales and Marketing Issues
Having a great idea isn’t enough to succeed. Your customers need to know that you exist, after all. It’s not enough to think that you’ll generate business through word-of-mouth. While yes, word-of-mouth is highly effective once you have an established audience, you need to build that initial audience before expecting them to go forth and sing your praises. Creating (and subsequently executing) an effective sales and marketing plan is pivotal for success. Without this crucial aspect of business planning, you are already starting off on the wrong foot.
Lack of Research
This one is as simple as it sounds, and unfortunately, it is all too common. It’s easy to come up with an idea and run with it, but it’s much harder to conduct the type of thorough market research that is necessary to ensure that your business actually succeeds. All too often, eager entrepreneurs get so caught up in the hype of their amazing idea that they forget to do the extensive research necessary to ensure that their idea is actually, in fact, amazing.
When Do Startups Typically Shut Down?
Startups typically follow common paths in their realization of success or failure. As previously mentioned, according to data from 2019, startups have a failure rate of about 90%. Almost 22% of startups fail in their first year, but the road doesn’t necessarily get easier just because you survive your first year in business. Thirty percent of startups fail in their second year, an unfortunate 50% of startups fail in their fifth year, and an astounding seventy percent of startups fail in their tenth year.
If the statistics on startups illustrate one thing for sure, it’s that startup life doesn’t get easier as you go on longer. Failure is still a possibility—a common possibility, in fact—and the risk of failure can be mitigated wherever possible. However, if one of those statistics applies to you and you have failed in a prior endeavor, that doesn’t mean you should look down on yourself as a loser or statistic. Instead, you can learn from failure and ensure that your next attempt at greatness is better informed.
What You Can Learn From Failure?
Failure isn’t a dead end; it’s simply a call to action. That call to action is to do better, be better, and keep trying. Failure is a necessary step to achieve success, and in many ways, failure teaches incredible lessons.
There is no better way to learn how to operate a business than by actually operating one. The hands-on experience teaches you things a textbook or mentor can’t, and even if you’ve failed you are walking away with valuable insight that you didn’t have coming in.
Failing teaches you about the market in which you were trying to operate. Were you too early? Were you right on time, but were lacking an aspect of your offering that your audience expects? These questions provide useful information, especially for entrepreneurs who want to jump right back into a new endeavor.
What Not to Do
In learning about operations and the market and all that fun stuff, you’ve also learned a lot of not-so-fun stuff about mistakes you’ve made that should be avoided in the future at all costs. Instead of being bummed or having shame about these mistakes, embrace them and realize they’ll be part of your epic story once you reach the success you’re working so hard for.
Who you can count on
Having mentors, peers, and employees you can count on is simply invaluable. Failing—and seeing the people who have your back once you do—provides you with the knowledge of who is in your corner and rooting for you. By having people you can trust and rely on, you can make better staffing, mentoring, and operational choices in the future.
Even if you failed in this endeavor, you surely learned what you’re good at! That’s helpful information and will allow you to better determine what to tackle yourself next time—and what should be delegated to someone else.
…And your Weaknesses
Self-awareness is everything. Just like it’s helpful to know your strengths, it’s also helpful to know your weaknesses. That way you can either improve on them during this period of learning from failure and/or you can know what you absolutely should not touch when beginning your next startup.
Famous Entrepreneurs Who Have Failed
If you don’t believe that failure is powerful, informative, and transformative, perhaps these entrepreneurial icons can help convince you. Each of these wildly successful entrepreneurs failed in past endeavors before experiencing their eventual success.
No list of successful entrepreneurs would be complete without Walt Disney, who was allegedly fired from a newspaper job for lacking ideas and innovation. His persistence paid off, however. Disney is now worth tens of billions of dollars—and Walt Disney is forever immortalized by his namesake.
You likely know that Thomas Edison was one of the most successful innovators in the entirety of American history thus far—but did you know how much he failed? It took him thousands of attempts to invent the lightbulb, but he stayed the course and continued to learn from failure. Hence his famous quote, “I have not failed 10,000 times—I’ve successfully found 10,000 ways that will not work.”
His name may sound generic, but if you’ve heard of FedEx, then you’ve heard of the incredible company started by Mr. Smith. In college, a professor apparently told Fred Smith that his idea was interesting, but not feasible. This kind of feedback is often given to entrepreneurs, and Fred Smith is a perfect example of why you should keep pushing. His “interesting” idea is now a billion-dollar business.
Steve Jobs was known for being one of the most successful entrepreneurs in modern times—at least in the eyes of the average consumer. But many people don’t know that he was fired from the very company he is known for making a success. Steve Jobs attributed that firing to his desire to become a beginner again, also allowing himself to become more creative in the process. That major failure in his career ended up thrusting him to more successful heights in the long run.
How Can You Prevent Your Business From Failing?
Be proactive about finances
Whether you plan to finance your business yourself, crowdfund, get a loan, or take on investors, you should have access to more money than you think you need. You never know what roadblocks might pop up, and having a safety net will ensure that you can continue to operate, push past the hard times, and be more likely to realize success.
Delegation is seriously underrated—at least, in the eyes of most entrepreneurs. While it certainly feels nice to be able to tackle a task and say you did it yourself, it feels even better when you know that task is delegated to someone who can appropriately and most effectively handle the situation at hand. Your business can’t be everything for everyone, and trying to be the jack-of-all-trades at the helm of the company is just as futile. Successful, enduring entrepreneurs delegate with ease and continue to do so without hesitation.
Research will always be an important aspect of running a sustainable business. There will always be innovations to be planned for, industry trends to get ahead of, and tweaks that need to be made. Conducting continuous and extensive research is pivotal for longevity in business. The more prepared you are, the less likely you are to fail.
Plan For What You Can’t Plan For
Being successful in business requires a level of fluidity and flexibility that can be hard for certain personality types and organizational styles. When running a business—especially a new and growing business—it is virtually impossible to plan for every scenario you may one day encounter. Instead, you can make contingency plans and actively foster a culture of resilience within your business.
Address Problems Before They Become Too Big
Running away from situations when they get tough might feel like an evolutionary response or a natural act of human nature, but if you don’t want to fail in your endeavors you have to get comfortable addressing the uncomfortable. When problems pop up and fires break out, it’s critical that you squash the problems and put out the fires as soon as possible. Otherwise, those issues will quickly snowball into huge, catastrophic weaknesses that will cripple your company. Having the courage to confront even the most disconcerting problems is key to preventing your business from failing.
Love What You Do
If you start your business solely because you think it’s an endeavor that can make you a lot of money, then you are without a doubt starting your business for the wrong reason. That’s not to say that wanting to be successful can’t be a source of motivation and discipline for you; it just shouldn’t be your only one. Operating a business that’s primed for longevity requires a level of tenacity, dedication, and passion that profit alone cannot generate. You have to genuinely love what you do, or else when the going gets tough you’ll find yourself wondering why you got into your industry in the first place. Truly loving what you do will prevent doubt, regret, complacency—and by preventing those negative outcomes, failure will be more likely prevented as well.
No matter how much you love what you do, burnout will remain a risk. As the face, brains, and/or heart behind an endeavor, you have a lot at stake. This emotional, mental, and sometimes physical investment makes entrepreneurs prone to burnout. Burnout often results in a lack of the very drive that once motivated you to start the very company you soon find yourself overwhelmed by. You can’t be “Go go go” 100% of the time; it’s simply not sustainable or healthy. By delegating, prioritizing self-care, and making balance a mandatory part of your entrepreneurial lifestyle, you can prevent burnout and increase your chances of succeeding in the long run.
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