The Biggest Reasons Start-Ups Fail and How To Avoid

Launching your very own business is easier now than it has ever been before. Long gone are the days where only the rich can open a company and answer to no one but themselves, however the fact still remains that sustaining a working business is the hardest part of all.

With campaigns floating around like the aptly named ‘Startup Britain’, entrepreneurs-to-be are able to access the guidance and resources that are needed in order to get closer to their dream of owning a business.

But with the influx of new start ups follows the ever-increasing figure of SME failures, with London start up’s being deemed the most likely to fail. It’s worrying that just over half of companies operating in the capital make it to the three year mark but this isn’t all that surprising given that 9 out of 10 start ups fail altogether.

Now that the UK has become a booming nation of start-ups and SMEs, it’s important that key business decision makers know what pitfalls to avoid. In this blog, Nucleus dissect the top 6 reasons start up’s fail and how you can ensure your SME does not fall prey to the same destiny.

No Market Demand for Your Product or Service

Before launching your start up or even a new product offering within it, ensure that you have done enough research to ascertain whether there is enough demand for it. Most start ups emerge from an individual’s passion for what they eventually go on to sell, but a passion for something does not necessarily equate to a substantial enough demand to create a successful business.

In order to launch and run a sustainable business, you must first evaluate whether the market demand is substantial enough that your business can make a decent profit margin long term.

If your start up is to beat the odds in an already overcrowded sector, key figures within your business will need to be experts within your industry and constantly up to date with any important changes or developing trends. But before you even get to this stage, you first need to perfect how to research market demand.

High Cash Burn Rates

One of the leading reasons for start ups failing is that they simply run out of money due to a high burn rate. By definition, burn rate is the amount of cash a business either spends or loses per month. Whilst it can be tempting to spend a lot of money with the hope of making more, it is in fact a much better idea to adopt the slow and steady approach. Start ups should always aim to operate with as much frugality as possible in the initial stages.

A mistake that plenty of entrepreneurs make when gaining access to capital is that they spend it far too quickly. For the majority of start up owners, it is likely that they have never handled such a large figure of cash before and this often leads to spending frivolously.

Hundreds of thousands and even millions can seem like an endless amount in the initial stages of a business’s journey, but it is important to remember that it is not an infinite figure either. Securing a commercial loan or money from an investor is certainly your best bet at achieving success for your start up, but that money must be spent wisely for it to provide the right results for your new business.

Struggle to Raise Capital

Whilst high cash burn rates are a concern for many start ups, the inability to access money altogether is a bigger problem for plenty of start ups. Borrowing money from banks and alternative lenders is not always as straight forward as many entrepreneurs predict.

Banks are infamous for having extremely difficult criteria to surpass in order to get the funding needed to launch a business idea and whilst alternative lenders have changed the commercial lending landscape entirely, it is not bulletproof and without its limitations.

There are still various hoops a start up needs to jump through to get the cash that is so desperately needed and different lenders will have their own checklist of requirements.

Nucleus understand how difficult it can be for start ups to get funding, given the lack of accounts and ability to demonstrate profitability spanning back years. We feel that could-be entrepreneurs with genuinely viable business ideas should not be held back simply because they are not seasoned business owners. We have finance available that is the perfect fit for start ups. Our property finance product can be utilised as start up capital and for individuals with no savings to support their business idea coming to fruition, borrowers can leverage their home to access cash instead.

Poor Marketing Strategies

Sometimes, the only real difference between one business succeeding and another of the exact same kind failing is simply the strength of the marketing campaigns they produce. Many entrepreneurs make the mistake of believing that a great product or service will speak for itself because the reality is that it is really quite the opposite.

There are businesses out there who barely offer anything more than their counterparts – and even businesses that offer considerably less too, yet there are miles ahead in terms of recognition and profit. Why is that? Well, the answer is straightforward – their marketing campaigns are better than those of their competitors.

If you’re new to the concept of marketing, read our tips on how to market your small business on a budget. A powerful marketing strategy is the backbone of any successful business and if you want to generate awareness and demand around what your business offers, well-planned marketing campaigns will pave the way for long-term financial stability for your start up.

Right Business Idea, Wrong Team

Having the right people in your business is essential if you want it to thrive and for that to happen, your business needs to be prepared to pay for the best people. A mistake that many start ups make is trying to get the cheapest workforce available, but it has been proven time and time again that investing in the right people pays off in the long run.

Richard Branson had the right idea when he boldly stated that customers come second and that employees should always come first. It’s a controversial statement indeed but this philosophy will bring with it a list of benefits for both your company and your clients.

Research found that high performers tend to deliver approximately 400% more in productivity than the average employee, so it’s important that you invest in the right employees for your company – and once you do, be a good enough employer that they don’t want to leave.

Inadequate Business Planning

Perhaps you’re familiar with the phrase: “Where there is no vision, there is no hope.” When it comes to successfully running a start up business, vision is the pillar that will drive it forward and without it, a business will struggle to thrive, regardless of the product or service it sells. To combat this problem, businesses of every size are urged to create a vision statement, which will in turn allow everyone involved to visualise where the business wants to be in years to come, as well as establishing the path to follow in order to reach that goal.

Unfortunately, not every one of the 660,000 new companies registered in the UK every year will flourish and of those businesses, 60% close their doors within three years. It is a widely accepted truth that a large number of new ventures fail, but your budding start up does not have to be one of them.

For more SME advice and tips, read our related posts below. If you are experiencing cash flow challenges or want to realise your business growth plans, get in touch with our team of Funding Specialists today on 020 7839 9451 or email [email protected].