Why Startups Fail
One of the biggest challenges entrepreneurs face when starting a business is ensuring it succeeds. Recent statistics show that more than one out of five businesses fail within their first year of operation. Understanding the main factors contributing to a business’s downfall can help prevent aspiring entrepreneurs from making the same mistakes.
So then, what are some of the top reasons businesses fail?
Why businesses fail: top 10 reasons
According to recent research, the leading reason most businesses fail is running out of capital. More than one-third of all businesses (38%) have fallen victim to this. To avoid running into financial problems, consider starting businesses that require low start-up costs, such as dropshipping or print-on-demand.
The second- and third-biggest reasons businesses fail are not having sufficient finances and launching a product without a business model to support it—27% of startups closed because of these two reasons. These figures suggest that businesses with no solid infrastructure to stand on can find themselves struggling to scale.
Number four on the list of the top reasons businesses fail is the COVID-19 pandemic, which forced 18% of startups to shut down. Experts say this statistic on why startups fail highlights the importance of being vigilant and having the flexibility to pivot according to market fluctuations.
This is followed by a lack of need for the product, a reason for which 17% of startups fail. Legal challenges and getting outcompeted rank in joint sixth on the list of the top reasons startups fail. 16% of businesses were forced to shut down their operations because of this. Bureaucracy can be complicated to deal with, especially for first-time business owners. If you’re thinking about starting an online business, make sure you’re aware of and comply with ecommerce laws and regulations for selling online. Setting up succinct systems, practices, and policies can also prevent legal issues from arising.
Conflict among team members or investors and pricing or cost issues are the eighth- and ninth-biggest reasons businesses fail, affecting as many as 14% of businesses. Having an unfriendly product and team members that don’t fit in well can also be a cause for failure—these lead to 13% of startups closing down.
A mistimed product launch also ranks among the top reasons startups fail. More than one in 10 (11%) of businesses say it’s why their entrepreneurial venture had to close.