The number of Start Ups launching continues to accelerate each year however the survival rates are still low, with many capsizing before five years.
The construction sector chance of survival is only 44%, the health sector 50% and the tech sector has one of the highest rates of failure with 92% start ups failing before three years.
So why are Start Ups failing?
The top three reasons are:
1. Market problems
The product does not meet a market need. This it typical when a entrepreneur chooses to create a new product based on their own passion for it. For example, if you love flowers you may set up a florist without establishing if there is a demand for another florist in the area.
Another reason is the potential customer does not feel the product adds significant value to them; it is a 'nice to have' not a 'must have'. The product is a 'vitamin', a nice to have that a customer will purchase if they have the money or desire. Products that are 'aspirins', a must have, are more likely to cause the customer to buy as it helps them solves a problem or overcome human suffering.
2. Poor management
Typically Start Up teams burst onto the scene with bags of enthusiasm, passion and determination to be successful however due to lack of experience or skills gaps flounder after two years. Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2.
3. Run out of capital
There are many reasons Start Ups fail and running out of capital makes it into the Top 3. It is easy to over forecast demand for a new product in the first year. Until a new product is launched and the customer appetite is established, forecasts are just that, forecasts. Immediately adjusting your cash burn rate to the lower sales levels is required to avoid a capsize. Sounds obvious yet many Start Ups suffer as a result of not responding quick enough to the reduction in sales.
If you find yourself suffering from one or all of these reasons, the wise words of Napolean Hill offer great advice.
'When defeat comes accept it as a signal that your plans were not sound, rebuild those plans and set sail once more towards your coveted goal' - Napolean Hill