The talk about entrepreneurship and startups has significantly increased recently, especially with the tremendous growth that this sector has witnessed in the last twenty years. As a result, pens started writing and talking about the success stories achieved by entrepreneurs through their startups, which turned into major global companies in a few years.

On the other hand, we do not find anyone talking about the startup failure and the retreat of many entrepreneurs from their ideas and projects during the first year of work.

Many statistics suggest that the failure rate of startups reaches 90%, meaning that 9 out of 10 startups fail, according to Startup Genome. Therefore, it is necessary to identify the most important reasons that lead to the failure of startups and the solutions used to avoid this failure. It is also essential to delve deeply and try to understand this sector accurately before taking risks and going through experiments with known results in advance.

Why do Startups Fail?

The startup failure rate is around 90%, as mentioned above, and Researches concluded that21.5% of startups fail in the first year of their launch, 30% in the second year, and 50% in the fifth year, while the percentage of failure after ten years of launching startups reaches 70%.

The reasons that lead to the failure of start-ups vary according to each company’s situation and work environment, which means difficulty in listing them, including lack of funding, presence in the wrong market, poor entrepreneurs experience and many others. But there is a range of reasons common to most start-ups that have failed.

The most important reasons for startup failure

1- Cash flow problems and failure to raise new capital

Most startups depend on investors and external financing to cover their expenses until they can reap profits by selling the products and services they provide and thus achieve the required cash flows. Still, the problem lies if profits are not achieved quickly enough, leading investors to stop funding the company to avoid further losses.

Cash flow problems are among the most common and important reasons for closing startups. If a startup cannot quickly solve its cash problems, it will find itself out of the race!

2- Failure to understand market needs

The market can be considered very complex and challenging to understand! Many entrepreneurs believe that their ideas and solutions will penetrate the market very smoothly due to their extreme importance. That is the essence of entrepreneurship, that is, providing a particular product or solution to a societal problem, but that does not necessarily mean that these products will be bought.

Therefore, the problem of market understanding and the inadequacy of the product to meet customer needs are among the most critical issues that lead to the failure of startups. The percentage of startups that failed for reasons related to the market is estimated at 50% of the failed companies, a large proportion that requires special attention.

3- Team weakness and problems among partners

The work team and the founding partners of the startups cannot be separated, as they are largely overlapping. Most startups cannot hire experts at the beginning of their launch. The solution is to forge partnerships to accomplish different businesses, which leads to some problems that cause the company’s failure, the most important of which are:

• Start-up companies need a variety of experiences, but most entrepreneurs look for partners with the same expertise and specialization in pursuit of consensus ideas. Still, at the same time, this leads to knowledge gaps in the company and weaknesses in certain technical aspects.
• Some partnerships succeed in the first stage of the startup’s work. But, then, the partners collide with their different goals and objectives, often because there is no explicit agreement when establishing the company, which leads to the dissolution of the company if the goals greatly differ between the partners.
• Many entrepreneurs suffer from the problem of team asymmetry, i.e., some team members work hard and bear a lot of workloads, while others perform only a few small tasks.

4- Poor business plan

A bad business plan can cause startup failure because it does not consider all the necessary factors related to the product, customers, etc… Most failed business plans share a miscalculation of costs, weak production schedules, as well as a failure to keep pace with changes in the market after the plan is prepared, and a misunderstanding of target customers and their needs. 

The errors in preparing the business plan result from the founders’ lack of experience and not using experts in the field to help them prepare a successful business plan.

5- Marketing weakness

Good marketing is the most important feature of successful companies. A good product suited to customers’ needs can only reach actual customers through effective marketing processes. Unfortunately, many startups are in trouble with a lack of interest in marketing, and their weak competencies in this field, leading to weak sales and low profits due to the product’s inaccessibility to customers willing to buy. Entrepreneurs who do not have marketing skills often make mistakes when they do not think of outsourcing these tasks to specialized competent marketing agencies.

6- Fatigue and loss of passion

It can be said: All startups are launched due to the enthusiasm and passion of entrepreneurs toward an idea, which represents their energy to continue working and endure all the difficulties and obstacles they face. However, one of the common problems facing entrepreneurs, which sometimes leads to startup failure, is the loss of passion at a critical phase of moving the idea to the required level of implementation, which happens due to the extreme exhaustion that affects entrepreneurs in the early stages of foundation and launch.

The early stages of startup life are like a bottleneck for entrepreneurs. Because of the many obstacles and challenges they face, many entrepreneurs miscalculate these stages and do not maintain the same energy level they have in the subsequent stages.

How to Avoid Failure in Startups?

Previous statistics indicating a high failure rate in the startup sector do not mean that success is not possible. Avoiding the previous causes of failure by taking some measures and solutions can help overcome obstacles and the success of startups. The most important solutions an entrepreneur must consider are:

1- Rigorous Research

The entrepreneur must thoroughly conduct market-related research and the customer need before any other step. He must conduct research every now and then to ensure that he keeps pace with market changes. Instead of launching the product directly based on expectations, the minimum applicable product (MVP) can be prepared and tested on a specific group of clients.

2- Finding Suitable Partners

The problem of a weak work team can be avoided by searching for suitable partners for the idea and work. That requires partners with the same interest and goals while having different abilities and knowledge to create an integrated team.

3- Outsourcing Some Businesses to Specialized Companies

An entrepreneur may not be able to hire experts at the beginning of his startup’s life due to the inability to cover recruitment and salary expenses. Instead, he can deal with specialized companies and agencies to outsource work that requires advanced expertise to these companies to ensure that the work is done at the lowest possible cost.

4- Keep learning

Startups are the best place to learn, and they need highly motivated people to learn simultaneously! The entrepreneur needs to continue the learning process to fill the gaps and needs in his company, so he shouldn’t stop learning about business, marketing, product development, and operations management as long as he wants success for his startup.

5- Never give up

No matter how good the work looks in the startup, it will go through difficult times when it may be largely disrupted, and sales may stop for a while. Therefore, it is necessary for the entrepreneur to remain motivated, maintain his energy, and not give up no matter how difficult the circumstances seem because patience and passion are some of the essential characteristics of successful entrepreneurs.

In conclusion, Many entrepreneurs fail due to not understanding many concepts related to startups and their operating mechanisms. That’s why the entrepreneur must learn properly and undergo professional training, engage experts and mentors during the early stages of the life of startups and join the programs offered by premium incubators.