Starting a new company is a very exciting journey, and most of us have toyed with the idea more than once. We come up with an interesting business idea, we see that there might be a market for us, and even get a couple of people on board. However, according to the Small Business Administration (SBA), one-fifth of small businesses fail during their first year of operations. And that’s not all, since half of the small businesses fail during their first five years, and only one third makes it past ten years.
With these crushing numbers, deciding to pursue our dream of entrepreneurship might take a bit more courage. It doesn’t have to be that way, though. As some say, information is power. And thanks to CB Insights, a company that specializes in gathering and analyzing data for all-size businesses, we have enough information to make sure our small business blooms and grows like we want it to. They analyzed 101 startups post-mortems and found the 20 main reasons why small businesses fail. Among the top 5 were a lack of market need, running out of cash, missing the right team, getting outcompeted, and pricing issues.
Before trying to find funding for our startup, we need to think of a need our product or service will be solving. Without that, our business is doomed to fail. Carrying out extensive and detailed market research prior is essential.
42% of startups in the study lacked solving a market need, and that’s why they failed. Besides market research, there are other steps we can follow to make sure we understand our customers and how they will react to our product.
One of the most important aspects that will keep our business afloat is cash. Making sure we have enough capital available to cover our company’s expenses is vital. There are several ways we can get funding for our small business and keep it operational. However, a smart allocation is the key to success, sometimes.
Running out of cash was the reason why 29% of startups had to go out of business. Since most of us might think of a business loan as initial funding to start our business, having a business credit line might help us cope with smaller but more frequent expenses.
Nowadays, the difference between a decent company and an outstanding one resides in having the right team. As our company develops, having a diverse team with different skills that complement each other’s is fundamental. This will help us tackle any possible obstacle we face. It will also provide a full understanding of issues with a diversified perspective on how to solve them
Lacking the right team led 23% of startups to failure. Some of the main characteristics to look for when putting together the best team include adaptability, communication, talent, and dedication.
Some experts might say that the best thing you can do is not to pay attention to your competitors. This is true to some extent. We shouldn’t obsess about what they do or how they do it, but we shouldn’t ignore them completely either. Whenever a product or a service starts getting market validation, there will be definitely more than one wanting a slice of the cake while they can.
19% of the startups surveyed didn’t pay enough attention to their competitors, and that’s what got them out of the game. One of the most efficient ways to keep track of competitors is to attend local or national trade shows. You get to have face-to-face interaction and a better understanding of what they do and how they do it. This intel is key to make sure you do things better.
Finding the perfect balance between the price of our product and the production cost while making a profit is tough. After all, you want to make sure you can keep producing, but want to attract customers too. It can become one of the most difficult parts of starting a business from scratch.
19% of startups found this process so daunting that they ended up unable to keep producing. Knowing your market, choosing the most suitable pricing approach, and working out all your costs should help you set the right price for your product.