January 25, 2023

Opinions expressed by Entrepreneur contributors are their own.

It is estimated that as many as 90% of startups worldwide fail within the first five years. Still, both new and seasoned entrepreneurs put their hearts and souls into starting a new venture every year. As a serial entrepreneur and investor, I have built several businesses over the years. While some failed, a few of them succeeded and became multi-million dollar companies with offices on a global scale.

Being an entrepreneur is often seen through rose colored glasses, but the reality is that it takes hard work, perseverance and guts. You can expect to work long hours and work-life balance can be challenging. You will have to concentrate on designing the product, acquiring new customers, doing the marketing and arranging the finances. It can even feel overwhelming how many hats you have to wear. Moreover, there is no guarantee of success.

So, why do so many startups fail? While many different factors can cause startups to fail, here are just a few of the main reasons:

Related: 5 Reasons Why Startups Fail (And Why They’re All Preventable)

5 main reasons why startups fail

Money Problems:

One of the main reasons startups fail is that they run out of money or fail to raise the capital they need. There can be many factors contributing to this. They may be struggling to attract investors and get them on board with their idea, or they may be struggling to get the clients and customers they need to bring in cash.

Startups often don’t go as planned with hiccups along the way, which can cost money. So unless you have the cash flow, you’re going to struggle to get the work done so the product can move into production and start making money. In addition, poor cost management can often make the difference between success and failure.

No market needed:

You may feel that your idea is great and solves a very important problem, but if it doesn’t meet a market need, you’ll struggle to get interested buyers. This could mean that your product or service isn’t filling a gap in the market, or that there isn’t a market for the gap you’re trying to fill.

Sometimes people try to get around this by marketing a product to everyone, but this is often too broad and you run the risk of not being able to create an audience around the product or service. Even if you have a great business idea and there is a market need for it, it could still be a case of bad timing. If you’re too early, the market may not be ready for your business – and if you’re too late, the market may be saturated or the hype may be over.

Driven out by competition:

Awareness of the competition and the market in general is essential if you want to emerge as a leader as competition can be fierce when it comes to business. However, many entrepreneurs don’t put the necessary time and effort into assessing and learning from the competition or don’t take the time to develop a unique value proposition to help their brand stand out from the crowd. About 20% of startups fail because they are outcompeted.

Having a flawed business model:

Business models are critical to a startup’s success, enabling you to scale and become profitable. It can give a startup a competitive advantage and help them better understand their own operations. It can also lead to an established financing plan to increase cash flow and profitability. However, one of the main reasons why startups fail is that entrepreneurs have a flawed business model and as such are unable to scale or sustain the business.

Lack of passion or burnout:

Starting a new business can disrupt your work-life balance. Maybe you work long hours or weekends to stay on task, but risk getting burnt out. Unfortunately, we live in a world where working to the limit earns you a badge of honor, but it can have a negative impact on your health, your family life, and your job. Many entrepreneurs lack the tools to handle the pressures of running a startup and can quickly slide into burnout if they’re not careful.

Related: 5 tips to avoid a boot failure

How can entrepreneurs prepare for success?

As an entrepreneur, I know how challenging it can be to get a new business off the ground and turn a profit. That’s why at VentureRock, a digital venture capital platform and ecosystem of founders, financiers and builders building the next generation of global technology companies, we’ve created a 72-step program to help accelerate startups and reduce startup failures.

While there is no magic formula for success, there are some key points you can focus on to set yourself on the right track.

Reminder of the “why:”

This tip seems so simple, but it’s crucial – and that’s remembering the ‘why’. This could be why you are doing this or why you feel your business is important. It can be your anchor in maintaining a clear vision of what you want to achieve and what problem you are trying to solve in the market. It also reminds you of your passion and provides a starting point for building a solid foundation for your business and establishing core values.

If you focus solely on selling products and making money, the chances of you succeeding in the long run are slim and most will give up. This is where my company’s approach comes into play, working with ventures from start to finish and guiding founders to long-term success.

Play to your strengths:

Leveraging your strengths can be critical in early-stage startups, but they can often be your secret sauce and what your company makes of you. We all have unique qualities and strengths, and they can help you differentiate your business from others. Look for ways to leverage your strengths and use them to the best of your ability. It’s important to stay true to yourself and make sure that what you’re doing is in line with your sense of happiness, purpose, and meaning.

Get support and build a network:

As an entrepreneur, I am passionate about helping entrepreneurs succeed and using my experience to help reduce the failure rate for startups. Getting the support you need early on can be critical, whether it’s joining groups or taking masterclasses with like-minded people to build a network. I strongly believe in working closely with people who are already where you want to be, so working with a mentor can be incredibly helpful.

Related: 3 ways to avoid the pain of startup errors

Being an entrepreneur often means taking a risk, but it’s better to go for it than regret later that you didn’t try. You never know the result of your efforts until you do, and while there may be obstacles along the way, having faith in yourself can take you a long way.

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