According to the most recent statistics, more than 50% of small businesses fail in the first four years of operating. In fact, if we take a look at businesses established in 2011, there are only 3% that made it to their fifth year.
By Amir Noghani
The reasons behind such large number of startups failing are numerous: more than 80% report having cash flow problems, around 45% have inexperienced managers, and 11% inexperienced owners in the line of products or services. Still, one of the major concerns is the fact that young entrepreneurs are unaware there are any issues until it is too late. For this reason, we have listed several most common ones to draw your attention to them and prevent you from hitting the iceberg.
1. Financial Struggles
Still in a fundraising phase
As already mentioned, poorly managed finances are one of the most common problems business owners face when starting a company. Naturally, at the very beginning, you are on the lookout for investors. However, what many fail to do is set the deadline for their investors, and then, in a way, the company gets “stuck” in a fundraising mode. If you find it difficult to close impressive investors and you cannot get out of this starting phase, you might just run out of money real soon.
Also, do you know the exact number of shares you have and how many are outstanding? Whenever a company goes through funding rounds, the owner has to be updated. If your startup is well-performing so far, it means you should be able to raise funds without heavy dilution, which usually occurs when investors don’t feel like your business is good enough to give great investment terms.
2. The over-crowded marketplace
At times, young entrepreneurs have fairly innovative ideas but don’t set aside the time to analyze the market and their consumers’ requirements. What happens more often than not is that startups create products or services users are simply not interested in. For this reason, define your target customers, define your buyer-persona, demographics, their educational background, interests and needs in order to determine whether your offering will fit their personal or business lives.
On the other hand, there are instances in which small businesses are simply copying competitors, providing their target customers with something there is already an abundance of on the market. In such case, when you’re simply copying the competitors without innovation, you will experience slow product growth. If it is less than 5% a week, you better look for potential pivots.
3. Issues with the Management
Sadly, quite frequently we see employees having a lack of trust in their CEOs, and you certainly don’t want anyone questioning your leadership skills. Ensure you are completely honest and transparent, since people have grown tired of unexpected surprises and outcomes which result from the lack of preparation. Lack of information can scare your people and, ultimately, you might end up losing top talent. Political manoeuvring and secret agendas will make your people lose trust in you as a leader, what will reflect on the overall productivity.
4. Lack of teamwork and motivation
When you are facing complex issues, they have to be approached tactically, which is unable to do when an employee is working on their own. It is quite common to see politics enter startup culture, what results in the situation where employees are all only looking after themselves, obeying to the ‘survival of the fittest principle’.
Always define what is expected of your people and provide opportunities to reinvent themselves. This way, you will keep them motivated to work. If it happens that one or more employees are not pulling their weights, you end up with a systematic problem with your company culture, which is one of the most difficult to solve, as they stem from a lack of self-motivation and respect for management.
5. Short deadlines and the lack of time
Young entrepreneurs often want to fulfil every client’s wish, even if they are fairly unreasonable. With this come unreasonable deadlines employees are impossible to meet, and all of this leads to a number of mistakes and problems which are impossible to solve in such short amount of time. It’s a domino effect which, in the end, results in a lot of dissatisfaction on your, clients, and employees’ side.
In the end, don’t let the abovementioned statistics and warnings put you off and discourage you from following your dream. There are always going to be a few bumps on the road and, as a matter of fact, you are more likely to succeed if you try and fail then if you don’t take any risks whatsoever.
Keep an eye on your stocks, set the closing date for your investors, define your target audience’s needs, believe in your product and continually work on your employees’ education, and you might just find yourself in the 3% of companies which manage to achieve stellar success from their first try.
Bio: Amir Noghani is the general manager at https://agseosydney.com.au/. He’s been working on marketing projects for startups and SMBs for more than seven years.