Marcia's Leadership Q and As: Why do so many startups fail?

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Q. Why do so many startup companies fail, and what can be done to improve the success rate?

A. Gut punch! Entrepreneurs put their sweat and tears into their startups only to experience failure. Ten percent of startups fail in the first year of existence, and 70% more fail in the next two to five years. That’s a lot of waste, in ideas, energy, investments, and cash.

There are multiple causes for startup failures, but are the reasons just scratching the surface? Do so many businesses fail because the real root causes have not been identified and remedied? If business leaders and their investors understood the path toward failure the organization is likely to take (based on the statistics), they would pivot their company.

The common reasons for startup failures include:

  • Poor product-market fit (there are few customers who will buy the products or services)

  • The company was not solving a significant customer problem

  • Poor implementation of marketing strategies

  • Poor timing

  • Lack of competitive edge

  • Lack of cash or burning through it too fast

  • Lack of management experience and business or industry knowledge

These are symptoms of failing businesses. However, the root causes of business failures are deeper. Yet, if they are addressed, more startups could survive.

Entrepreneurs must commit to not only ideas and a product dream, but a compelling purpose that everyone in the organization understands and understands how they can contribute to it. Startup leaders must also commit to developing a plan for success, a holistic system to strategically think and ask questions like never before.

Great leaders anticipate. They understand and communicate obsessively with customers and new markets to deeply understand what their customers need.

Startup entrepreneurs require a theoretical foundation of management principles to be successful. Personally, they make time to become more self-aware and continually develop their communication and leadership skills (leading is a continual process of learning.)

Seeking relevant, knowledgeable advisors and coaches is essential to engage in the pertinent conversations that a young team need to address and ask. Advisors who have management knowledge (not just people who have been a successful founder once or twice) can help guide and scale young organizations and help them survive and accelerate their growth.