It’s estimated that about nine out of ten startups fail. This is a staggering yet very real statistic. Just because you’ve raised capital or you’re growing at a steady pace doesn’t mean you’ll end up successful.
You need to constantly stay on your toes and adapt with the markets or your run may be over before you know it. This all sounds very harsh and to be honest it should. The more you know now the better.
That said, here are three common reasons why startups fail and how you can avoid them:
Lack of Genuine Passion
A big reason why entrepreneurs decide to build a startup is to build wealth. However it cannot be the sole driver. Sure it can be a “carrot on the stick” but you need to find genuine passion within yourself and your cofounders. It may be five or even ten years before you have huge financial returns from your startup.
The best way to avoid this is to focus on solving problems. Not only that, focus on solving problems that are personal for you.
The CEO of GoPro, Nick Woodson, struggled to seamlessly capture footage while surfing. His passion for surfing and desire to find a better way produced the billion dollar brand that we all know and love today. Find your passion, the money will follow.
Uncommitted Co-Founders
If you want to truly build a successful business it requires your entire focus and dedication. In the early stages sure it’s common to work other jobs to pay the bills as you moonlight your startup. However, once it’s time to really build you need your entire founding team right there with you.
With so many opportunities around us it’s common for entrepreneurs to work on multiple projects at once. While it’s always good to hedge your bets it doesn’t always apply to co-founding a company. That’s the risk you need to take.
To avoid this, you need to set a clear understanding and be transparent with your cofounders from day one. Once the company can afford to pay minimum salaries you should have everyone working full-time.
Misuse of Capital
This one seems obvious right? Well, that’s because it is. Unfortunately that doesn’t mean entrepreneurs are getting smarter around how they use capital. In startups the unexpected typically occurs and your deadlines are typically pushed back way further than anticipated.
Your capital is your lifeline. That said you need to be frugal and entrust the funds with someone who’s experienced. Taking salaries is often necessary to keep founders engaged full-time. If it makes more sense to pay founders to work full time rather than working part-time with another job it’s best to allocate those funds. However it’s common for founders to get a little trigger happy and pull large salaries without truly justifying them.
Final Thoughts
Statistically speaking most startups fail. While it may sound daunting you should never let that deter you from launching the business of your dreams. What you can do is make yourself aware of all potential pitfalls and do whatever it takes to avoid them. The three listed above are very common, so do your best to steer clear!
Renzo Costarella
Renzo Costarella is an entrepreneur, avid learner, and startup enthusiast currently living in Silicon Valley. He consults for several startups in the Bay Area and is pursuing a few ideas of his own.