The latest data shows that 90% of startups across all industries fail, 10% of which fail within the first year. About 70% of businesses fall through during the first five years. As annoying as it is to hear stories of startup failures when you are taking the plunge, you need to know what you are getting yourself into.
Starting a business is challenging but you can shift the odds in your favor by recognizing and avoiding specific pitfalls. Here are the top five reasons why startups fail, each of which is preventable:
1. Hiring the Wrong Person
Startups cannot afford to hire the wrong person. Though large companies often hire the wrong people, they can sustain a certain amount of incompetence without any adverse consequences. A bad hire can seriously jeopardize the growth of a startup, especially if you have a small budget.
Regardless of what role you are hiring for, you must take time with your first hires. It may not be judicious to hire new people for leadership roles. Sticking to people that you have worked with before may be more prudent.
Some functions of the business can be performed on a limited-contract basis, such as marketing, accounting, and even sales.
2. Not Prioritizing Mission Over Revenue
There is a reason behind the existence of every business. Many businesses fail because they give up executive control to outside investors whose motives don’t align with the company’s mission statement.
When seeking outside investors, it’s important to understand their secondary and tertiary goals. Investors are always looking for returns and so are you. However, companies that prioritize the mission over revenue are more profitable in the long run. It’s draining to raise money for startups and often, business owners end up partnering with investors who don’t believe in their mission.
3. Not Hiring a Salesperson
It takes a lot of nerve to start an entrepreneurial journey. Entrepreneurs take the initiative of starting a business. However, they cannot perform all business functions on their own. While an entrepreneur can be a good salesperson, it’s rare to get that combination in the same individual.
All startups need a true salesperson to sell effectively and make money. Many startups fail because the founders are under the impression that they can handle the sales part themselves. A good salesperson is an effective communicator and has powerful networks in the industry. Casinos like betFIRST hire salespeople to keep gamers happy while they are playing in the casino.
4. Picking The Wrong Name
The name of your business is incredibly important. Words make a lasting impression on customers. From the company’s mission and vision statements to its name, everything needs to be worded carefully. While this may seem like the simplest thing, it can make or break your business.
Startups often have names that are personal or meaningful to their founders but do not reflect their mission or vision. Whatever name you choose, it must reflect your company’s ideology. Your startup’s name should reflect how you want your customers to feel about your business.