Everyone dreams of tossing off the shackles of answering to a boss and putting their own startup business into motion. This romantic notion is the embodiment of the great American dream; yet, according to this source, around 50-percent of all startup businesses fail within their first five-years of operation. This leaves many aspiring entrepreneurs wondering why so many startups fail. To answer this lingering question, let us consider five of the biggest threats to your startup business.
The Lack of Initial Funds to Sustain Operations
It should be no surprise. Starting a new business, even a small startup, will inevitably require a generous amount of funding. A well thought out business plan must account for how a startup plans to cover long term rental costs, keep the lights on, pay employees and still manage to purchase all necessary supplies and equipment. Let us not forget that product manufacturing costs are also a critical piece of the funding pie to account for as well for non-service-based startups. The funding factor that many upstart ventures fail to account for early on is how to cover all these costs when sales are down, or worse, non-existent for months. Failed startups quickly learn that the bills keep coming, even if the money is not there to cover their operating costs.
Incompetent Management Will Destroy Your Startup
Hiring your cousin Jake to manage your startup at a discount, which seemed like a brilliant idea at the time, will soon prove to be the straw that broke the camel’s back. Jake has a history of dropping the ball, his organizational skills leave a lot to be desired and it turns out that he is really not a people person. Because of incompetent management, your best employees decide to walk out at the worse possible time. To make matters worse, Jake is unable to pick up the slack after driving all your best talent out the front door. Failing to put the right people in management positions is nothing short of begging your startup to fail. Fortunately, this is generally a problem that can be avoided by forward thinking business owners.
Data Security Issues
You just got back from your Wednesday morning game. Before you shower and head off to the office, you flip on the television to catch the latest news. To your horror, your little startup is making national headlines because your client data was stolen and plastered all over the Internet. Since your data security was not up to par, your business’s reputation is now beyond repair. If that weren’t bad enough, your clients are now filing class action lawsuits against your company to hold you accountable for their personal information being made public.
Expanding at the Wrong Time
Knowing when to expand your business requires a lot of thought and market insight. The demand for your company’s product or service may not justify wasting the capital to expand your business. Failing to expand in time could cause you to miss out on the next emerging boom in your industry. The information you gather for market research may or may not be accurately painting a proper picture of where your industry is heading, making expansion a risky proposition at best. Jumping the gun on an expansion decision can spell huge financial disasters that could easily bury a young startup.
The Owner Is the Problem
It might shock many startup business owners to learn that they are their business’s own worst nightmare. According to NY Times, a lot of business owners simply get in the way of their startup venture’s success. Some owners let their emotions drive their decisions, which in turn drives their company right into the ground. Other owners simply lack critical insights necessary to properly navigate the industry and customer-base with which they are dealing. When things go wrong, these same owners are often too unwilling to admit to themselves, until it is way too late, that they destroyed their own company. It is too easy for them to point the finger at everything else, but themselves.
The business world is a place of varying degrees of risk and reward. Knowing the risks and limiting one’s liabilities early on will help a new start up venture to survive many of the fatal financial and operational pitfalls. Always keeping your eye on what the worse possible outcome is, when making any business decision, will inevitably help even a new business owner become aware of how to keep their company on the straight and narrow path to success.