Top 3 Reasons Why Most Startups Fail & How To Prevent Them

Starting a CompanyOver the last several years I’ve enjoyed the opportunity to mentor some of the brightest entrepreneurs in North America. 

Each and every mentorship is a learning opportunity, not only for the startup but also for myself.  I get to learn about new and exciting industries and enhance my knowledge in various established industries on a daily basis.

Each mentorship relationship is unique; every startup possesses a different combination of strengths and weaknesses.  Successful mentorship requires an investment of time and energy in order to learn about the business, understand the opportunities, assess the competition and determine the best way to provide value to the mentee.  A level of trust is absolutely critical because a successful mentorship requires entrepreneurs to divulge a lot of behind the scene details.

The amount that I’ve learned from mentorship is as valuable as what I learned launching my first company.  Being exposed to others’ strengths where I have weaknesses has been extremely educational for me.  Leveraging new knowledge has helped me to grow personally and professionally in ways I couldn’t have imagined.   So then let’s delve into today’s blog topic.

Based on my mentoring experiences to date, what do I believe are the reasons that most startup companies fail?

Insufficient clients

This one is terrifying!  More than half of all startup companies that I’ve mentored had invested months of time and thousands of dollars into ideas without taking the time to figure out if they could sell their idea – no market study, no customer commitments, and in most cases little to no understanding of their competitors.

You wouldn’t buy a house without looking around, assessing the costs and considering the surrounding services available, would you?  Well then why would you ever commit to a business idea without first testing the waters?

Insufficient money

More than half of all startup companies that I’ve mentored are living with this challenge as well.  Entrepreneurs are launching new startups without taking the time to ensure their own financial stability first.  This gives them a significant disadvantage out of the gate.  They’re up against established competitors with cashflow and funding and they’re struggling to cover their own personal expenses.  This results in a competitive disadvantage compounded with the persistent distraction while they do what is necessary to keep their personal finances afloat.

Insufficient focus

Entrepreneurs are passionate individuals who come up with new and exciting ideas, often times on a daily basis.  While this can be a tremendous asset, it can also be a hindrance.  It is vital that entrepreneurs learn how to focus and not allow every idea to lead them off course.  Most startups don’t have a 2 year goal, but they should.  Not only does preparing these 2 year goal plans help startups to perform their due diligence, it also helps the startup to accomplish the two items above – ensuring that startups will be able to gain paying clients and generate funds for their startup.

How can startups prevent these from occurring?

  • Starting a company when your own financial house is not in order is extremely reckless.  Before you launch your startup make sure that you have sufficient funds to give it a chance to achieve success.  If you estimate it will take 6 months to sustainability, save enough to survive for 12 months – twice as long.  I know, I know… but you need to start now.  Unfortunately if you start something with no sustainability there’s exponentially higher odds that you’ll fail.  In 2013, 93% of incubated startups at Y Combinator failed, don’t let your startup become a similar statistic; give yourself a fighting chance to succeed.
  • Invest the time required to prepare a quality business plan.  The business plan must detail your products and services, target audiences, competitive advantages, strengths and weaknesses, 2-5 year target goals and more.  Every quarter take the time to review and adjust your business plan accordingly.  This is vital to remain focused and hold yourself accountable.  Don’t know where to get a business plan template?  Check out Business-in-a-Box.
  • Validate your revenue model with a successful professional mentor in order to ensure that your products and services will sell.  Successful mentors are extremely helpful in identifying how realistic and/or viable the revenue model is.  Try to get commitments from leads before you build your products or launch your services, or, if this is not possible, then take the time to perform a market study.  Talk to the Ontario Ministry of Economic Development.  They work with BDC to help with preparation of market studies and in some situations they will cover 50% of the cost of the market study.

Conclusion

To date I’ve enjoyed the opportunity to mentor several dozen startups.  The most successful businesses have a common theme – they start out with a clear focus driven by a solid business plan and target a tangible business requirement, they’ve got paying customers on board and adequate financing behind the company enabling the entrepreneurs to execute with clarity, precision and without constant worry about any urgent financial concerns.  If you can launch your startup with all three of these out of the gate, you have a trifecta that positions you ahead of most other startups, dramatically increasing your odds for success.

Welcome to the life of an entrepreneur.  Hold on; it’s going to be a wild ride and the only seatbelts in this fast-paced world are the love and support of your family and friends.  Good luck and congratulations!

Brent Mondoux
CEO, N-VisionIT Interactive
brent@betterwebsites.ca

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