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Posted by Chantelle Argent on 13th January 2021

Top 5 Reasons Why Startups Fail And How Business Mentoring Can Help

In the current climate, the thought of launching a startup might seem especially daunting. 2020 slapped us all with the realisation that you really cannot predict what is around the corner.

But pandemic or no pandemic, starting a business always comes with risks. All the more reason to focus on the things we can control, and ensure the best chance of survival.

An estimated 9 out of 10 startup businesses will fail (Review 42, 2020). But this is certainly not a reason to abandon something that could be great. The very fact that so many startups fail means there is a wealth of data to help us understand why they fail.

According to a study by CB Insights which gathered post-mortems from 101 failed startups, the top 5 reasons why startups fail were found to be:

  1. No Market Need
  2. Ran Out Of Cash
  3. Not The Right Team
  4. Getting Outcompeted
  5. Pricing/Cost Issues

Here’s what these points mean, and how a mentor could help your startup avoid the same failures:

Missing The Market

Trying to solve a problem that is interesting but unnecessary was cited as the top reason for failure in 42% of cases.

This goes to show, you cannot bend the market to your will, and trying to force a square peg into a round hole will get you nowhere.

It’s important to be passionate if you want your startup to succeed, but beware of looking at your business through rose-coloured glasses. A mentor or advisor can give you the reality-check you need to ensure that your startup serves a market need rather than your own interests.

Running Out Of Cash

Unless you have bottomless pockets, money is finite, and it needs to be allocated very thoughtfully. Running out of money is the next biggest reason why startups fail, coming in at 29%.

The best way to avoid this is thinking strategically about where your capital is best placed. Turning to someone who has experience in successfully building a business from the ground up can help you to navigate this tricky path.

smashed-piggy-bank

Troubles On The Team

Another reason why a startup might fail comes down to a team with gaps in expertise. In the early days of launching a business you may have limited resource. But it is essential to have a diverse team of people around you, all bringing different skillsets to the table.

If you are not yet in a position to hire the dream team, a mentor who is able to fill these gaps in knowledge is the next best thing. Think about looking for a mentor who specialises in a specific area where you feel your business might be lacking.

Crushed By Competitors

It’s definitely not a good idea to obsess over your competitors. But the truth is, if there is a gap in the market, you’re not going to be the only one trying to fill it. Inability to match up to competition accounted for 19% of startup failures in the study.

There could be a million good reasons to launch your startup, but none of them matter if someone else is doing it better than you.

A mentor who has years of experience in your industry could provide invaluable insight into who your biggest competitors are and how to get ahead of them.

The Costing Conundrum

Effectively pricing your product or service is like walking a tightrope. Almost every consumer’s first consideration when debating a purchase is value for money. You want to charge enough to cover costs, but not so much that you turn away potential consumers.

But competitive pricing is not all about face value, and it doesn’t necessarily pay to undercut your competitors. By all means, place your product in the higher price bracket. The challenge lies in ensuring that you live up to that price.

CB Insights found that other top reasons for startups failing include user un-friendly or mistimed products, lack of business model, bad marketing, lack of focus or passion, burnout, and not leveraging your network.

Wiseup offers a network of mentors from various industries who have weathered the startup storm. Browse our hand-picked mentors today and give your startup the best chance of success.
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