Why Do Startups Fail? 10 Mistakes That Can Kill Your Startup

Studies estimate that about 90% of startups fail. This means that getting a startup to life is already difficult enough.

A fast-paced work environment, pressure from investors, negligence to plan ahead, and everything in between can cause a new startup to fail often before it really ever starts, as they need to manage a set of complex operations.

And you must do this with a modest budget and limited resources.

Keep reading to find out exactly where these startups failures begin to happen and how to avoid them.  

10 Mistakes That Kill Startups

Startups differ in a unique way. They tend to be tech-oriented and have a specific idea in mind they want to scale on a mass level.

But working from an idea to its manifestation can be a complicated process. 

Here is a list of 10 fatal mistakes that explains why 90% of startups fail.

1. Premature Scaling

When you first launch your business it is prudent to only spend money on essential software and development. Gratuitous spending before the product has been proven viable can threaten the lifespan of your company.

Premature scaling is the most popular reason why startups fail. Establishing a stable growth phase before scaling is paramount. 

2. Using Untested Technology

Working with the technology that you know and trust is key to eliminating unnecessary technological risks that can result in significant monetary loss. 

Startup founders often get fascinated by new technology and turn to them rather than using simpler, more secure options. 

Implementing technology that is relevant to the market, but is not relevant to the business can lead to engineering difficulties later on.

Studies estimate that about 90% of startups fail.

3. Team Burnout

In a chaotic startup environment, it can be often challenging to create a realistic plan and bring it to life. Startups often overestimate the capabilities of smaller teams and burn out before they manage to make progress.

It is not exactly an engineering problem, but as the startup mentality relies strongly on teamwork, it can affect the engineering team greatly.

Related read: 5 Environmental Startups To Watch Out for in 2021

4. Not Having a Clear Vision

Understanding your goals and how you want to achieve them is the foundation of successful business practice.

You need to be able to communicate your goals both to your clients and your employees to ensure that everyone knows why you are doing what you are doing.

Not having a clear vision may have you end up walking in circles without any progress. And progress is essential for startups to survive.

5. Cybersecurity Problems

The threat of cyber-attacks becomes greater with every technological advancement. In 2018, the overall cost of cybercrimes was 2.7 billion dollars in the U. S. 

Small businesses are at an increased risk because they often don’t have the infrastructure to protect themselves. Many don’t even understand what to watch out for in the first place. 

Start by protecting your employees, and go from there. This will ensure that you can prevent vulnerabilities at every level. 

6. Lack of Financial Management 

You need money to make money. But more importantly, you need to know how to manage money to keep it in the first place.   

It’s important to think of new ways to make and as money. Outsourcing, for example, is a good way to bolster business growth.

7. Not Enough Clients

If you’re running a business the right way, then optimally clients will be your main source of revenue.

However, many influences can throw things out of order and your business may not meet initial expectations for clientele. 

8. Strong Competition

Strong competition naturally leads to a lack of clientele. In addition to this, startups can also exacerbate resources in an effort to compete, and ultimately exhaust the business before it scales. 

9. Problems With the Business Model

Effective business plans are what make businesses thrive. No matter what your idea is, it is your responsibility to see how it’ll flesh out before it goes to market, not after. 

This requires extensive documentation covering topics such as forecasting, marketing strategy, selling propositions, and more. 

10. Hiring the Wrong Team

When hiring a team of engineers it is crucial to ensure that they can actually deliver results within a given timeframe. For startups, time is a critical factor and the faster it can prove that its product is viable, the likelier its chances for survival.

The market is saturated with engineers that sound promising. But what startups really need is high-quality fast work that will create a solid foundation for your business to grow.

What To Do When a Startup Fails?

While it sounds scary, you need to prepare for the reality and know what is the most common action to do, when startups fail.

It will feel hard to close a business that you just started, especially after putting so much time and effort into it, but this is often the best decision. 

Limited liability companies (LLCs) and corporations are treated as separate entities from the individual who started it, as opposed to if you were a chief executive officer (CEO) or sole proprietor of a company. 

This means that if the LLC is in debt, then you are not responsible for it.

And for all intents and purposes, you could walk away. That said, you should be careful about how exactly your business was financed. And in some cases, an individual or business will file for bankruptcy to avoid paying the debt. 

Closing a business is very process-oriented. You must include all employees, stakeholders, investors, the board of directors, and whoever else may be involved in the final decision. Then you should develop a systematic way of stopping operations.

You need to prepare for what to do when startups fail.

Conclusion

Several obstacles can impede you from having a successful startup. It’s pertinent to be cautious of hurdles and look for strategic ways to overcome them. 

Outsourcing your IT needs can be a tactical way of approaching software development without the need for undue stress. Outsourced teams can also reduce risks and save your wallet. 

Trio has highly qualified software engineers available to you. These engineers have been vetted and trained and are dually invested in helping your startup see the light. Learn more about Trio today!

 

 

Daniel Alcanja

CTO

About

Co-Founder & CTO of Trio. With more than 17 years of programming experience

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Closing a business is very process-oriented. You must include all employees, stakeholders, investors, the board of directors, and whoever else may be involved in the final decision. Then you should develop a systematic way of stopping operations.