If you are reading this, then maybe you are an entrepreneur in the first year of business, in the process of starting a business or dreaming of innovative ideas and plans to get one off the ground?
Here we have a look at why startups fail, and in doing so, help you to navigate the potential pitfalls building a new business brings.
The stats behind new business failure are pretty mind-blowing. 20% of new businesses will fail in their first year, that’s 1 in 5 startups going bump in the UK.
According to the National Federation of Self Employed & Small Businesses, there were 5.5 million small businesses at the start of 2021, compared with the previous year, the private sector business population decreased by 6.5% (-389,600 businesses).
Of course, COVID-19 has played a part in these stats, but nevertheless, starting a new enterprise can be pretty tough going.
Ultimately a business fails when it runs out of money. There are multiple single factors that may cause this or it could be a blend of reasons. Below we dive into the potential issues which cause startup businesses to fail in the UK and how to avoid them.
Thorough market research is key when designing a business model that not only works for a newly founded enterprise but also stands the test of time.
A successful business model has a strategic forward-thinking plan to consistently create value for customers but importantly, for itself.
A business model is regularly reviewed and honed.
The cornerstones of a successful model answer important questions about the business and set out a strong vision relating to the market, customer strengths and challenges.
New businesses have founders. These guys are the entrepreneurial vision behind the business (this is probably you!), truly believing that the business can be a success.
But businesses fail under poor management. If you struggle as a leader then your business may quickly slip into a hole.
From poor financial management to employee progression, morale and eventually productivity - all areas of your business will suffer, at best stunting growth but at worst leading your business to the end of the line.
If you start to run before you are ready, chances are you will stumble and fall flat on your face! As tempting as it may be after a strong start, scaling up too fast could be a recipe for disaster.
With the rapid growth in startups also comes additional costs, your first employees, and additional infrastructure. Are you truly prepared to handle it?
Startups generally need to spend cash to push towards success so cash burn is something to ignore not avoid at the outset. But if they burn through savings in the early months and business growth is slow - how do they survive?
If you start to run short of cash but don’t fancy giving a chunk of your business to an investor then debt funding options for startups and small businesses, such as unsecured loans, from high street banks to new breed debt finance lenders could be a plan of action you may think is safe.
Unfortunately, this decision to take on debt while your business struggles to grow could be fatal. Running out of cash is the top reason that startups site as their reason for failure!
It is much better to secure investor funding than to take on more debt at this time.
No matter how strong your business idea, service or product is, if you don’t have good business acumen then you are likely to fail.
Running a business is an art form that touches many different skillsets. Ensure you have the business knowledge required to make it work before you start out or your startup will be a start-flop.
A weak team can sink your newly sailed ship. There is no doubt that when it comes to successful organisations they were not built by one entrepreneur alone. That guy or gal knew they needed a strong team around them and they probably built that team up, team up, one member at a time!
Now, when we say ‘strong’ we don’t mean the unicorn of top talent, who will likely move on quickly, leaving you with a hole to fill. We mean knowledgeable, loyal employees whose own goals align with your business's mission and culture.
Don't forget that here at Business Tech Service our aim is to support startups by giving independent and impartial advice where its needed. from the best tech, to essential equipment and software. Learn more here or join our mailing list.
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