Why Startups Fail: Uncovering the 10 Key Causes of Business Failure

12 min read
Bitrix24 Team
November 23, 2023
Last updated: January 15, 2024
Why Startups Fail: Uncovering the 10 Key Causes of Business Failure

No one ever starts a business expecting things to go wrong and the venture itself to go bust. Business owners, pioneer staff, and investors always go in with the best of intentions. However, most of the time, it is a mix of a handful of reasons and a preponderance of circumstances that cause business downfall, and owners are unable to catch the warning signs for why startups fail until they’re in too deep. By then, things are more often than not too late even to try to save. 

If you’re a startup business owner and want to be on the lookout for these warning signs but are unsure of what to look out for, you’ve landed on the right article. Here, we will go through the top 10 key causes of business failure, along with tips on how you can avoid them or recover in time to rescue your company. 

The complete guide to business failure prevention

As a startup or small business owner, you might want to squash the thought of the possibility of your company failing, but if you want to foolproof your venture, it’s important to know why startups fail in the first place. It’s not fear-mongering if it’s aimed at preparing you for what could go wrong, therefore affording you the chance to plan for how to combat these failures. 

Some of these key causes may seem common sense, but it’s easy to lose sight of them when you’re in the thick of things, head down, and focused on work. Keep these potential entrepreneurial challenges and startup mistakes in your back pocket so you can recognize and quickly reverse the situation. 

1. Ineffective marketing plan and execution

Despite what most people want to believe, especially company owners, very few products and/or services really do sell themselves. You only need to look around and consider the market to acknowledge this fact. The blunder of not understanding your target market and possessing a strong and well-thought-out marketing scheme are just two of the reasons why startups fail. For this reason, you’ll need to sit down, focus, and come up with a marketing plan that will enable your business to make a dent in the trade. 

How can you hope to make a profit when you can’t even sell your products and/or services properly? If you do not have the time or the experience to come up with a master plan on your own, you can hire someone to do it for you as well as help in carrying it out. 

It would also be crucial to understand the market itself and the community your business is a part of. Focus-group discussions, feasibility studies, and product sampling are good ways to gauge if it’s the right time to launch or even if you’re in the correct commercial market in the first place. Some service providers like housekeeping companies, painters, and landscapers also offer free services from time to time to establish their presence with potential customers. Understanding the market and coming up with a well-built marketing plan will help you avoid any business downfall. 

2. Not being innovative enough and ignoring the competition

Ever wonder why the biggest phone companies release new phones with very few actual major upgrades year after year? Same with service providers that offer new upgrades, add-ons, and special offers on a regular basis? Complacency is the bane of any business and one of the causes why startups fail. If your company is to achieve longevity and be one of the key players in the industry, you need to innovate. Prepare your prototypes and revisit initial designs and product samples. Habitually look for ways in which you can improve on what you currently have or see what you can introduce into your current lineup of goods and/or services to entice new customers and further satisfy your current ones. 

Another way to innovate or inspire your drive is to look at what your competitors are up to. You have two choices here: you can go toe to toe with them, or you can one-up them. There’s no shame in improving on what they have to offer. Ignoring your competition can also be one of the factors for business failure. Some customers will not hesitate to sever long-term business relationships if they find another company that will serve them better. Make it a point to conduct a weekly review of your competitor’s performance and come up with new systems, products, and/or services. 

  

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3. Disregarding the care of your customers

It can be easy to get new customers. Keeping them loyal to your brand is another thing altogether. It’s a lot more challenging, and faltering to do so can contribute to your startup's failure. Effective and efficient customer care should be a key component of your daily business practices. For customers, nothing can be more annoying or disheartening and turn them away from a business than when their needs or concerns are ignored. Don’t make that mistake. 

Get an integrated CRM, so you never miss a contact, whether your customers prefer to get in touch through social media, email, or live chat. Each and every bit of precious information about potential and existing customers will get fed through the contact form and to your CRM, which helps keep your profiles updated. All of this helps you customize your approach to customer concerns and questions. From here, you can also create highly effective sales campaigns and marketing drives. 

4. Incompetent employees and ill-equipped management

Hire people who understand and share your company's mission, vision, and values. Otherwise, you will be doomed to fail because employing the wrong people can be one of the grounds for why startups fail. Make sure that everyone you bring on board will be helpful to the whole operation. Don’t hesitate to turn someone down or terminate their employment as soon as it becomes apparent that they will not be able to add value to your business. Once you have your team assembled, make certain that you equip them for the job by providing them with ample training, the proper tools, and all the other resources they may need to get the job done. 

The same goes for your management team. You can’t possibly have any hope of being able to successfully mold your team of future movers and shakers in the company if they lack the proper mentors. Look out for the managers who are not afraid to put their foot down and do what needs to be done to keep the company afloat. At the same time, be sure to watch out for managers who will help you create a work environment that is conducive to productivity, efficiency, and a bit of lighthearted fun from time to time to break the monotony of every day. 

Acquire a robust and highly reliable HR management software that will help you with the task of managing your staff, whether they’re rank-and-file or management level. Keep track of attendance problems that can evolve into bigger behavioral issues as well as top performers so you know who to coach better and who to line up for promotion. 

5. Insufficient business planning and poor understanding of regulations

Why Startups Fail: Uncovering the 10 Key Causes of Business Failure

Very little else can be attributed to business failure other than inadequate preparations and goal-setting. Think about it: how can you begin to steer your company toward success when you don’t even have a clear blueprint of your goals? A clear and concise business plan helps you visualize your company’s path to victory by giving you an accounting of your goals, deadlines, and other future projects. A plan entails your goals in values that are easy to understand and keep track of, such as numbers and percentages, along with the amount of time you’re giving your team to attain them. Without this, it will be like going cliff-jumping blind.   

The same goes for the regulations that you will need to abide by as a business owner. Before you even get started on anything, make sure you do your due diligence and study the existing laws – environmental, labor or employment, tax and permits, health and safety, and the like. Failure to comply with legislation and codes can also be why startups fail. 

Plan well and leave nothing to chance. To ensure that everyone is calibrated and aligned with said plans as well as the regulatory mandates set forth by governing bodies, store every reference and resource material you can get your hands on in central cloud storage. Then, anyone can revisit these when needed while they’re also guaranteed to be kept safe. 

6. Having an aversion to the word “no”

Sometimes, being an entrepreneur means finding the delicate balance between business interest and customer satisfaction. It might sound simple, but there are moments when it’s the last thing anyone would want to do especially when you think of everything that can happen when you bend to the customer’s sometimes illogical demands and set a precedent. Are you brave enough to turn a customer down and risk a low rating or negative feedback? Both of these can occasionally lead to startup failure. 

Then, there are times when you need to disregard revenue to keep a long-term customer happy. When a relationship has been established between consumer and company, somehow a discount is not too difficult to let go of, so long as you’re assured of return business. This is when you need to trust your judgment. 

Saying “no” can do wonders for your company at times. Teaching leaders and managers to assert themselves when dealing with customers is a powerful way to show people that you are a serious entity in the industry with protocols and procedures in place to help you run the company. On the other hand, be sure to use your critical thinking and decision-making skills when giving in to or declining requests. Be upfront, firm, but kind, and keep any feedback you receive on hand for review. There may be room for improvement in your policies to make concessions or changes down the line. 

7. Difficulty in building partnerships and integrating with other businesses

Just as no man is an island, no business can thrive in complete isolation, being far removed from other ventures, even competitors. This type of thinking is one of the reasons why startups fail. It’s important for your company, especially a startup or small business, to need a community of other companies as a support system, supply chain, and social partners. Trust that you will need it in time. Not making an effort even to initiate a working relationship with other firms could result in the failure of startups. 

If you want to support your community and the neighborhood you belong to, consider linking up with other businesses in the same area. The smaller the town, the higher its need is for commerce to funnel revenue back into it. Partner with other stores and establishments to carry out community care initiatives and bazaars or block parties. There are also a lot of things you can learn from other companies – practices and strategies that you can use in your own organization in the future. 

8. The absence of proper business systems

Disregarding data as the primary indicator of your firm’s strength and not using reports in your sales and marketing strategies can be detrimental to your overall success and is one of the causes why startups fail. Data analytics coupled with your CRM can be a robust business system, especially for small companies and startups because they help leaders understand the market better and improve their current practices along with their employees, customers, suppliers, and competitors. 

In the same manner, diligence must be observed in the upkeep of any company’s website, including all social media accounts and communication channels. Feedback, concerns, and recommendations from all fronts must be fed to the backend in real time otherwise, they may be rendered useless. All of these should be brought together to strengthen and further improve business systems. Make it infallible, covering every corner of your startup to make it impenetrable from threats and risks. 

  

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9. Inability to build trust within the company and with customers, clients, and partners

There’s nothing like the peace of mind of knowing you have the right people who know their jobs well working for you. If you can’t trust your team enough to leave them alone to allow them to do what they’re hired to do, you have little hope of taking your business far. This is why hiring the right people who are competent and possess the right skills is essential. 

Likewise, your clients, partners, and suppliers need to be able to trust you as well. This is also where a good business system comes in. Paying your external contributors on time, meeting deadlines and project goals, and maintaining the standard of quality for all your output all contribute to the sense of trust other parties give your business. If they are unable to trust you and vouch for your brand in the outside world, how can you hope for customers to trust you? 

Customers have to be able to trust you enough to give you their money, so to speak. How can you do this? By being transparent with them, setting their expectations at the onset, and listening carefully to them. Believe it or not, customers know when you’re not being upfront with them, regardless of the mode of communication. The inability to create a sense of trust within the business community is another basis for why startups fail. 

10. Being caught unprepared for emergencies or major challenges

If there’s anything business leaders and owners of every size have learned in recent years, it’s that no scenario is totally impossible or improbable. In the blink of an eye, the world can stop, and being unprepared for such events can do considerable damage to your company as well as be the cause of why startups fail. 

Although no one can plan for every unforeseen crisis that can spring up at any time, we’re all able to visualize scenarios and plan accordingly. You may not be able to create a solid strategy for coping with such events, but you can at least have a skeletal contingency plan that you can expand on should anything happen. It’s better to be prepared for anything than to be caught with your pants down, so to speak. 

Be sure to complete these plans and store them in the company’s cloud so anyone in the company can view them if and when needed. You can also elect to review them from time to time to make them better for future use. 

Business downfall and startup success: How to make your company the exception

Building a business from scratch can be a monumental undertaking, but it’s completely doable. All you need in your corner are the right people, proper planning, and the best tools you can get your hands on. Thankfully, everything you can possibly need when it comes to tools, applications, and software can be provided for you by Bitrix24. 

Make Bitrix24 your startup partner, and you won’t have to look further for any of your business needs. Sign up today and let Bitrix24 pave the way for your little engine that could become a trailblazer in the industry. 

FAQs

What are some common indicators that may suggest a startup is headed toward failure?

Some of the common indicators that a startup is headed towards failure are: 

  • Ineffective marketing

  • Dissatisfied customers 

  • Incompetent employees and management 

  • Difficulty in building partnerships within the community 

  • Lack of business systems 

  • Unpreparedness

In addition to these common indicators, it's essential for startups to continuously monitor their financial health, including cash flow and burn rate, as these factors can also significantly impact the trajectory of a young company.

How can startups leverage knowledge of key causes of business failure to prevent it?

Startups can leverage their understanding of the causes of business failure to proactively prevent it by strategically planning to address potential pitfalls, implementing contingency measures, and staying vigilant for early warning signs. This allows them to spring into action as soon as they see any cause for concern and respond swiftly to any issues that may arise.

Is there a particular stage in a startup’s life cycle where it’s most susceptible to failure?

The stage in a startup’s life cycle where it’s most susceptible to failure is the development or pre-launch stage. This is the stage where companies are preparing for the big launch while accruing expenditures without receiving any revenue in return. 

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Table of Content
The complete guide to business failure prevention 1. Ineffective marketing plan and execution 2. Not being innovative enough and ignoring the competition 3. Disregarding the care of your customers 4. Incompetent employees and ill-equipped management 5. Insufficient business planning and poor understanding of regulations 6. Having an aversion to the word “no” 7. Difficulty in building partnerships and integrating with other businesses 8. The absence of proper business systems 9. Inability to build trust within the company and with customers, clients, and partners 10. Being caught unprepared for emergencies or major challenges Business downfall and startup success: How to make your company the exception FAQs
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