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4 Big Reasons Why So Many Startups Fail

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Article Contributed by Mark Halstead 

There can be any number of reasons why a startup company might find itself heading out of business but it is worth focussing on some of the key causes and most common pitfalls.

1 – Failing to prepare

There is a lot that can go wrong for even the best prepared and battle-hardened small businesses but avoiding surprises is particularly vital for startups for whom a few sizable financial blows can spell disaster.

It is worth remembering too that dreaming about becoming a millionaire is not quite the same as proper preparation for running a startup enterprise. Enthusiasm and optimism only go so far and reality often has a horrible way of announcing itself in the context of startup operating.

Directors of small firms always need to ask themselves key questions and find the right answers but never more so than in the weeks and months before their startup gets started. It’s a cliché but it is very often true that failing to prepare is preparing to fail.

2 – Borrowing too much too soon

Startup companies should not always aim to borrow as much money as they can possibly access in the early stages of their development. In fact, borrowing too much money too soon can be the beginning of the end for many small businesses who never manage to get on top of their debts and their expenditure.

It is much better for startups to borrow only what they really need and to build a business from that basis. It can be difficult to curtail over-optimism in the early stages of a company’s progress but doing so might just make the difference between success and failure.

3 – Not enough help

Starting up a company will often bring out the best in ambitious entrepreneurs and an individual can achieve a great deal alone. However, effective delegation is an absolutely crucial aspect of leadership and of business management.

Getting too little help from colleagues, suppliers and service provides can be a recipe for disaster and a having no plan B can put unbearable pressure on people leading any enterprise. On the other side of the coin, however, taking on too many full time employees before the time is right can be a dangerous mistake as well. So striking the right balance between support and flexibility is vital.

4 – Inexperienced founders

There is no substitute for experience even when the fundamental ideas behind a startup company are solid and have great potential. The process of managing a business as it grows or as it faces setback after setback is extremely challenging and a lack of experience is very difficult to overcome. Everyone has to learn the ropes at some time in their career but the nature and the dynamics of running startup companies is generally very unforgiving of the missteps that can easily happen when directors are new to the business world.

Bio – Mark Halstead is from Red Flag Alert, part of the Begbies Traynor Group, and is now in his 10th year with the business. He’s worked at companies across the financial services industry and is a fellow of the Institute of Sales and Marketing.