5 Things Startups Do to Avoid Failure


Failure rates aren’t actually as high as popular business myths would have you believe, but a fair array of companies get started and don’t survive. In fact, about 20 percent of businesses fail in their first year, and 50 percent are gone five years later, according to a Business Insider infographic.

Don’t let fear of failure prevent you from starting a business. You should be wary, though, of some of the top reasons that startups fail and take steps to avoid them.

  1. Watch your cash flow very carefully

A shocking 82 percent of businesses die because of cash flow problems, according to the BI infographic. About 29 percent of those problems consists of running out of cash, which certainly makes it impossible to keep your outfit running smoothly.

You should try to watch every single penny of every transaction. It’s true that you have to spend money to make it, but you can’t spend cash the way you’d burn firewood. Develop a budget and consult with an accountant who’s primed to manage spending for growth rather than failure.

You also have to focus on the organizational aspect of your finances. Invest in a variety of software programs to ensure your invoices are paid on time, spending is appropriate, and taxes get handled properly.

Here are some of the best financial tools for small businesses.

  1. Verify that there’s a real need for your product or service

A whopping 42 percent of businesses fail simply because there’s no market for their product or service, according to BI research. Your idea might seem great because no one has thought of it before, but that doesn’t mean it will actually work. Your business idea might not have a presence in the market already because it simply doesn’t fit.

“Solve a real problem that creates real value in the world,” says Rich Thornett of Dribble. “Focus on the problem => solution => value => profit chain of events, and try to make a pass through this sequence sooner than later. Also, be strategic. Find a competitive advantage.”

Without a product or service that will stand out in the market and fulfill a need, your business will fail. Think seriously about the role your organization will play in the market before opening shop.

  1. Build a team you can trust

The BI infographic also states that 23 percent of businesses fail because they have a mediocre team. You’re the leader who will set the standards by which employees must abide, which gives you the power.

So you’ll want to start with a company culture that values learning and innovation. To develop such a culture, screen employees carefully.

Look for responsible individuals who will take the job seriously, even if it might not lead to a major pay increase. Then implement goal-setting and learning activities in your organization, and reward the ingenuity of your employees as you go.

You can also do a lot for your business by building a support team in your immediate circle. The people you spend the most time with will guide your day-to-day decisions and activity.

Ask yourself: Do I surround myself with a successful group, or do I usually hang out with time-wasters? How does that impact my life?

  1. Outcompete your main competition

Just over 19 percent of businesses fail because they were outcompeted. Sometimes, your excellent business idea enters an oversaturated market.

Established businesses with experience and loyal clientele will win. More often, however, a company will be outcompeted because it didn’t work hard enough. If you’re facing a difficult market, find a way to stand out.

One of the best ways to do so is through branding. “We went against the grain by going after younger consumers and created a new, authentic brand that’s much more relevant to their generation,” says Jordan Eisenberg, president of UrgentRX in Colorado.

“Since we don’t have the big marketing dollars, we used creativity to develop a fun and irreverent brand personality that resonates with our consumers. We say things our competitors won’t, connect directly with our fans on social media, and engage our customers in a fun way.”

Follow this pattern in your operation. Employ new and alternative tactics to stay competitive.

  1. Have your company’s purpose in mind from the start

Having a clear mission, purpose, or goal for your business is perhaps the most important thing you can do. This is more crucial than having a nifty product or a service that stands out above the rest.

A company without some kind of mission will fail simply because it lacks purpose. Larry Keltto, author behind Blogthusiast and The Solopreneur Life, for example, says that businesses startups launched by a single person fail most often because there’s no clear purpose behind what they’re doing.

“In the solo space, you hear a lot of people say ‘do what you love,’ ‘do what you’re passionate about.’ But to succeed … I think you need to be motivated by purpose, not passion,” he says in his book. “Passion is the emotional, irrational euphoria that occurs at the beginning of a relationship. When solo businesses are based on passion, it’s very difficult to survive serious setbacks. Love can quickly turn to hate.”

Placing your mission statement in direct view will do wonders for keeping your positive energy going. Write your business plan and develop a strategy that will create forward momentum, even when you’re just starting out.