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Why Start-up's Fail - 10 Reasons To Consider

Why Start-up's Fail - 10 Reasons To Consider

Today, I am reminded yet again why start-ups fail.

I met with a lovely couple a few weeks ago who wanted to open a retail store. They have a dream to work for themselves and the wife wanted to be in fashion.

They are new to the market and have never owned a fashion outlet, but they both have passion and are determined to do it.

I asked all the normal questions;

Have you done market research?
Who are your competitors?
How will you differentiate yourself?
What location will you open in?
Do you have a business plan?
Have you looked at product and through research identified what will sell to the surrounding target audience?
What will your price point be?

And the questions went on and on. Many could not be answered.

My immediate reaction was to encourage them to do their due diligence. To develop a business plan and do market research.
hope they prove me wrong.

Even though they are both really nice people, my gut tells me that they will open a store and fail. I really hope they prove me wrong.

Start-ups fail for many reasons. Some through no fault of their own, and others because the buddying entrepreneur has not done their due diligence and were acting on a whim.

Starting a business is not for the faint hearted particularly if you take the steps to sign leases for premises and hire staff. It can not only cost you a lot of money, it may even cripple you.

10 Reasons Why Startups Fail:

1. Market: No market research into viability of selling a product or service to a market segment.
2. Economy: Economic downturn directly affects your business (i.e. retail)
3. Business Model: No investment in developing a business model or ignoring the obvious when developing your business model that is too much about 'you' and not enough about your market.
4. Capital: Running out of money, cash flow problems and being undercapitalized to start off with. Short cuts along the way may mean that your brand is impaired.
5. Too much focus on you and not who you are trying to sell to: Entrepreneurs who name a company after something that means something to them, but nothing to their customers. They pick colours and store fitouts based on what they like, not what the market is looking for.
6.  No point of differentiation to competitors: Going into an over-saturated market with the same copied product and trying to make it work will be a disaster.
7.  Location: Location is king - if you cheap-skate on location, you may find that you set up shop where no-one will find you. The result will speak for itself.
8.  Pricing: No real pricing strategy and not enough investigation into the figures. Make sure that you know when your business will break even, what your costs are to run your business and what your plan is upfront if you don't get enough sales in the door at the start. If you price your product competitively and find that no matter how much you sell, you can't make a dollar - yet your competitors with greater buying power are making a killing - then you need to reconsider your pricing and product strategy.
9. Ignorance: Contrary to the saying, ignorance is not bliss. If you are ignorant about running a business and making it profitable, chances are you are going to fail. This is not a game of monopoly. This is real life, with real money and real responsibility.
10. Listen to those who have been there and done that. You will get pearles of wisdom from people you least expect. The greatest business success stories come from people who have learnt to listen.

And... two extras for good measure which are the most important of all...

PRODUCT: Do your research. Make sure you are not starting up with a product that has no chance of succeeding in the market. Make sure that there are people in the market that would want your product. Don't compete head to head with industry leaders with no point of differentiation. Ensure that your product is quality, professional and represents your brand.

MARKETING: Develop a brand that resonates with your target market and then develop a marketing strategy to make sure they all know you exist, what you do, where to find you, why they should choose you over others etc.

Did you start a business that failed? Share your story with me on This email address is being protected from spambots. You need JavaScript enabled to view it.

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comments ( 7 )
  • Ora Dady
    Ora Dady
    04 Oct 2013

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    SEO, Link Building Tools, Back Linking Tools, Search Engine Optimization,
    13 Jul 2013

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  • Raihan
    27 Apr 2012

    Great tips! I do look up to people who have made it far in their business and the ones that make it a success usually has a strong sense of determination and they put their whole heart into it.
    My mother is an entrepreneur herself and was in the retail business but the economy did affect her a lot. Instead of closing up the boutique and giving up, she closed it down, renovated it and changed the store from a boutique to a restaurant because she knew even in hard times, customers still had to eat.
    I've also seen people's business not making it to the top and how they easily give up after just a few months of trying. Maybe they're not trying enough or maybe it's just a tremendous loss to continue, but everyone does need to have a positive mind at the end of the day.

  • Nikki White
    Nikki White
    26 Apr 2012

    Another really important reason that startups fail is that they don't implement procedures or systems in their business at the outset. This means they struggle to grow, employ contractors or a small team and the business owner finds themselves drowning in the day to day operations of their business rather than enjoying the customer side of their business.

    I work with businesses all the time around this problem and see great results when startups start thinking like big business from the outset - so I created an information product to help time strapped small business owners with this.

  • Sandra
    26 Apr 2012

    Just like the couple you met, my parents also didn't do any market research or a business plan when they started up a business in the early 90's, they opened up a milk bar/convenience store in an inner city suburb. I think the reason why it was able to operate for 15 years was its location (which was the point of differentiation) and pricing strategy.

    I think if I was going to start up a business of my own, I would definitely be conducting market research and writing up a business plan. If you're putting all your time, money and energy into it, then you want to make sure you do it right.

  • Sophie
    26 Apr 2012

    Thanks for your tips.

    This is all what we learn at school, but this is theoretical. What pleasure to heard this to an experienced business woman.

    I don't know yet what I will do in the future, but I am sure that I will contact you to guide me in my choices.

  • kirsty
    26 Apr 2012

    It is important that before entering a market business' have done there research to ensure that their company will be strategically sustainable over time. There is an art to understanding the industry, market place and also the competition and suppliers bargaining power. Not only do start ups need to know their industry inside out, they also need to foresee the external influences in the market. With so much competition it is imperative for business' to think outside the square, as innovative thinking is the key to establishing a competitive advantage.