Top 7 Reasons Startups Fail - And How to Avoid Them

Entrepreneurs hear plenty about others successes and how they did it. But, what most young entrepreneurs don't hear is about failures. As a startup, you have a lot going for you, but if you want to avoid a catastrophic failure like 80 percent of new business ventures out there, you have to know what causes even the greatest ideas to fall short of their potential.

It is easy for a new business owner to be sucked into a vacuum where they are focused on their business, vision and goals – and they tend to lose perspective. It doesn't matter if your business is three weeks old or three years old, the first five years of a business's life will determine whether it stays or goes.

If you have a new business or you're thinking of starting something soon, there are some common reasons businesses fail – and you can be one of those savvy entrepreneurs who avoid those all-to-common pitfalls.

Reason 1 – The Business Doesn't Solve Consumer Problems

To have a successful business, you need demand. That means your business idea must solve a consumer's problem. Do not assume that everything that needs to be created has been done already. As the world becomes more complex, so do consumer problems – which means there is always a problem out there for a startup to solve. Make sure your business idea solves some sort of problem and that there is a demand for your solution.

Reason 2 – Not Enough Cash Reserves

The most common reason startups fail doesn't have to do with money, but it is a close contender. Running out of cash is common with startups, especially entrepreneurs with no business background or training. Some of the common reasons these startups dry their well too quickly is because they:

� Don't budget properly

� Do not plan for the years they won't profit

� Spend faster than they earn

� Aren't willing to seek outside funding

Reason 3 – The Business is All Concepts

A concept is great – but if you cannot create a physical product or service to bring to the market, your startup won't get very far. Consumers only buy what they can see and use. So, while your invention ideas and concepts are fascinating, you need a tangible product or service for your consumers to see and purchase.

Reason 4 – No Competitive Research

You have a great idea and there is a market, but have you researched the competition? If you are the 20th company in your city to start up the same business in a flooded market, you may not get very far. Consumers are more willing to purchase from established companies, just like investors are more willing to back a company that is first in line in the market rather than last. Do your homework and really research the competition. Make sure there is not only a market, but that there isn't an overwhelming number of competitors offering the same product or service.

Reason 5 – You Don't Have a Business Plan

Even if there is demand and you have an amazing product, you still need to scale your business operations appropriately. To get investors, plan your funds and even operate, you need a business plan. Most startups neglect business planning because they assume a business plan is only required when they need outside funding. But, a sound business plan works like a roadmap – telling you exactly how to run your business and achieve your goals.

Reason 6 – You're Structured Wrong

How you structure your startup matters. Picking a Sole Proprietorship when you should select an LLC or incorporating when you don't need to can not only raise tax liabilities, but personal liabilities as well.

Reason 7 – You Think You Can Do It Solo

Most entrepreneurs figure they can save costs by doing it all on their own. But unless you are an accountant and have thorough knowledge of business law, you are most likely making small, yet critical mistakes that will bite your business in the end. Never go solo. A smart entrepreneur knows when they are in over their head. Hiring an accountant to figure out your books and even hiring an attorney to help you pick your structure and draft contracts can make a huge difference on whether or not your business succeeds.


As a startup, you have the opportunity to create a business from scratch that offers you lifelong profits. But, what you do in the first few years is critical. From proper structuring to creating contracts to dealing with investors, you need the assistance of a law firm that understands new business ventures.

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