There are several reasons why startups fail. Between time management, raising funds and creating a successful business model, it’s no wonder that entrepreneurs are often finished before they really start.
According to For Entrepreneurs magazine, here are some of the biggest reasons why startups never leave the ground.
Market Problems: Many startups have little or no market for their product or service. And unfortunately, today’s tough economy makes everything more difficult. It may also not be the right time for the product or service.
Business Model Failure: Too often, entrepreneurs are too optimistic about getting customers. Finding them right off the bat may be easy enough for something new and exciting, but keeping them and getting more becomes tedious and expensive. Many startups don’t pay enough attention to figuring out the realistic costs of customer acquisition, therefore putting their company right from the get-go.
Poor Management Team: Many new businesses don’t have a competent management team. It is extremely important to have both knowledge and experience for success. Poor managers can be poor strategists, or make bad hiring decisions. A startup should be staffed with people with a track record.
Running out of Funds: In order for a startup to succeed, it must have a realistic budget and realistic milestones for raising the needed amount of money. But how are funds secured? One way is through grants, which may be available to minority business owners, single mothers or women entrepreneurs. Another source is crowd funding; the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. This has become increasingly popular, with websites devoted to raising money for startups popping up left and right. Independent video game developers in particular have found success using this method, often including a demo of their game in order to attract potential customers to donate money.
Joan Shulhafer is the owner and CEO of JSP&MC, a boutique agency serving authors and publishers of general and genre fiction with traditional and digital advertising, promotion and publicity targeting readers and booksellers. She says that challenges facing new businesses often simply come down to time and experience and says that “back room” jobs such as billing and bill paying often become overlooked when a solo owner simply does not have enough time to do everything herself or himself. She also cites changes, especially ones in technology as something that can also demand a lot of time and attention for small business owners. “First of all, there’s no IT department so you have to up your skills there” she writes. “And mastering the software needed to do the basics of the many small projects that don’t merit outsourcing sometimes becomes a second job. That’s where experience comes into play. Know your limits.”
While Joan says that being able to multitask and have a variety of skills is a good thing for business owners, she also has a word of caution for them as well. “A small business owner may need to be a jack of all trades in some respects but not to the degree that it interferes with providing the service or product at the heart of your business. I had to recognize and frequently remind myself of this.”
Dennis Potter is the owner and CEO of Complete Care, a home health agency that provides RNs, LPNs and Nurse Aids to people who are homebound as well as to hospices and long-term-care facilities.
“There were many challenges to starting the business and many of them are ongoing” he says. “Most of the issues are not related to our core business. For example, due to regulations we can’t use contract workers, all employees must be ours. So that requires us to pay payroll taxes, we have/had no idea how to do that so we incurred the expense of hiring a payroll company.”
Potter also claims that getting insurance was a challenge for him. The nature of his business required liability and workers compensation coverage. “We had to do quite a bit of shopping around to get it.”
Hiring and maintaining quality staff has been another challenge for Potter – because nurse’s aides are often low-skill low wage employees, there is a high turnover rate. However, he says that one of his biggest hurdles thus far has been underestimating the company’s capital requirements and the difficulty in securing financing. “We have come to learn that it is virtually impossible to secure lines of credit for a business that has been in operation for less than 2 years” he explains. “We have overcome this hurdle by slowing our growth and securing personal lines of credit.”
These two completely different businesses share the financial and time-management issues discussed above. To sum up, as lawyers like to say, knowing your business model, budget constraints and yourself and your personal limits and skills are essential to giving a startup a solid foundation to grow and to tackle any expected and unexpected hurdles.