Top Reasons Why Startups Fail in the First Year – Part 1

Not all startups are lucky enough to survive. Many startups fail even at at their first year of operations. If you want to know why startups fail, the following discussion may provide you with the answers. According to an investigation conducted by CB Insights, there are commonly 20 reasons for the startups to fail. The investigation, conducted on startup founders and investors, shed up the lights on the reasons behind the failure.

Why Startups Fail In Their First Year

Many factors determine the success of a startup to survive the competition. They include financial aspect, human resources, marketing factor, management, and many more. The following are the most common reasons why startups fail according to the survey by CB Insights:

Nonexistence of Market Need

It sounds ridiculous that a business runs without a defined market. In fact, the survey found that the most common factor behind the failure of startups is nonexistence of market need. Around 42% of the startup failure is because of this factor. This emphasizes the importance of market analysis before launching of a business, let alone a product. A market research indicates how the products or services will be received by the potential customers.

Being out of cash

The second reason why startups fail is financial aspect. When a business runs out of cash, there is nothing left to do, right? The survey revealed that around 29% of the failure was attributed to financial aspect. Money is just like the bloodstream in a business. Without it, a business will die.

The startups are particularly vulnerable to this condition. A startup has less bargaining power when negotiating with the investors. They do not have enough track record, creditworthiness report, or reputation in front of the potential investors. Sometimes, they do not even have a powerful position on the market.

Lack of a Solid Team

Human resources are central for a business to survive. Human resources are not only about the quantity, but also about the quality. A solid team is built upon the competent employees,  loyal employers, appropriate human resource management, appropriate payroll system, and many more. The survey found that 23% of the startup failure was because of lack of the right team.

Therefore, one of the first things to identify before you run a business is identifying the team members behind you. Identify strategic positions and make sure that you have the right men for them. In addition, do not forget to allocate some budgets for human resource development program as well as employee benefit programs.

Getting Out of Competition

A business’ ability to compete is a strategic aspect. When you enter an industry, where there are many established competitors, your position is at risk. Beating the competition is much more difficult unless you have a competitive advantage. The survey revealed that 19% of startup failure is because of getting out-competed.

There are many other reasons why startups fail. Learning from what CB Insights found is important for startups. You can avoid the similar mistake and take strategic steps to make sure that your business will survive.