Starting your own business is always a gamble.

660,000 new businesses are registered in the UK every year – but 60% of these will fail within the first three years. That is certainly a sobering thought for many budding entrepreneurs.

However, analysis has shown that there are some common pitfalls that – if you can successfully navigate them – you will have a much higher chance of making your own venture a success.

Let’s look at five top reasons start-ups can fail – and how you can use this knowledge to your advantage. 

1. No Market Need

This is a big one. Do people really need your product or service? Will they pay for it? Lack of a compelling value proposition or significant event that compels people to purchase can be the death of a new venture.

One of the best examples of a ‘market need’ failure is Juciero. A $400 juicer that raised $120 million from venture-capital firms, including Google Ventures, Kleiner Perkins Caufield & Byers and Campbell Soup. The firm folded after launch – after it became apparent that you could squeeze the same amount of juice, in the same amount of time, by simply squeezing the pouches by hand. Launched by an experienced team, including former Coca Cola President Jeff Dunn, investors and directors failed to see a glaring pitfall; people did not need the product.

However, it must be said, Juciero is a fine example of the power of a fantastic business pitch!

Timing is also important. Harnessing the market need, at the right moment, can give your venture a head start.  The COVID-19 pandemic has been the catalyst for many successful new ventures and business diversifications. For some businesses, who have been able to react quickly to customers' needs during lockdown and subsequent restrictions, COVID-19 has actually enabled them to thrive.

E-commerce businesses are booming in 2020, as are food delivery services; online food ordering and delivery platforms have enjoyed a 26.2% revenue growth. Businesses who could quickly move to online sales or take-away deliveries have been able to survive and even grow during the pandemic. Laithwaites home deliveries of wine, innovative café owners setting up stalls in popular walking spots and others moving businesses online have all seen a surge in popularity during this period. One fitness instructor who offers online fitness classes had an 88% increase in downloads this April compared to last year.

Experts believe the pandemic will signify a permanent change in the market. According to a recent McKinsey report, 90% of businesses believe the COVID crisis will fundamentally change the way they do business over the next five years, and 85% are concerned that the crisis will permanently impact on their customers' needs and wants.

For the savvy business owner, this shift represents a fantastic opportunity for market innovation and growth.

2. Poor management skills

Another major stumbling block for start-ups is the lack of an experienced management team. Just because you have an idea for a successful venture does not mean you necessarily have the business acumen and skills to make it a reality.

“[A start-up management team] are often weak on strategy, building a product that no-one wants to buy as they failed to do enough work to validate the ideas before and during development. This can carry through to poorly thought through go-to-market strategies” says David Stok, Partner at Matrix Partners.

In fact, team failure has been cited by 23% of start-ups as a reason their business failed.

There are ways for start-ups to tackle this lack of expertise. Firstly, through hands on experience and qualifications such as the University of Bath’s Entrepreneurship Management and Innovation online MSc. Secondly, building a competent management team that shares their vision and can fill any strategic gaps is also imperative.

“Get your investors involved” writes the founder of Kiko. “Your investors are there to help you. Get them involved from the start, and don’t be afraid to ask for help. I think we made the mistake early on of trying to do (and know) everything ourselves, perhaps out of insecurity over being so new to the business world. This is a mistake.”

3. Funding issues

Funding poses two major challenges for entrepreneurs; gaining investment in the first place and then knowing how best to spend it.

According to CB Insights, 29% of start-ups cite lack of liquidity as a reason for their demise – and 8% didn’t receive enough interest from investors to get their start-ups off the ground in the first place.

There are a range of options available for raising funds, including loans, trading equity, venture capital, angel investors and crowd funding. Each have their advantages and disadvantages – and all will need a comprehensive business plan and on-point pitching skills to access.

Having an in-depth understanding of how each of these options work, and what investors are looking for, is key to ensuring you take the best route for your start-up and secure the funds you require. If you manage to gain the funding you need, understanding when and where to invest – for example in recruitment, manufacturing or marketing - and when to pull back, is key.

4. Inadequate pricing strategy

For any new business, determining the pricing model for your product or service can be difficult. You need to ensure you are competitive; price too high and your customers won’t buy – price too low and you’re not going to make enough money to cover your overheads.

For this reason, 18% of start-ups state pricing as the reason that they failed.

To price competitively requires a deep understanding of your market, the value of your offering, your competition and your customer base. There are also different pricing models to consider depending on your venture – for example a SaaS business will price differently to a marketplace company - like Uber - or a consumer product.

Understanding the options available and determining which pricing model is most suitable for your start-up can be the deciding factor between success or failure.

5. Lack of a strategic marketing plan

It doesn’t matter how fantastic your product or service is if your target market doesn’t know about it. Spending your marketing budget on the right channels is imperative

“One of the biggest mistakes start-ups make is spending money on big marketing too quickly” says Sujan Patel, co-founder of Web Profits.

“If you do make the mistake of spending too much too soon, the worst thing that could happen is . . . nothing. The next worst thing that could happen is that your marketing turns out to be a huge success, but you’re incapable of meeting the resulting new demand”.

The lack of a well-researched and executed marketing plan can cause even the most high-potential businesses to fail. It is important to determine your buyer personas, value proposition, branding, marketing channels, budget, ability to meet demand and, of course, return on investment.

Kick start your entrepreneurial journey

The Entrepreneurship Management and Innovation online MSc at the University of Bath gives students the knowledge, mindset and skills they need to turn their ideas into successful business ventures.

Blurring the lines between traditional business disciplines, our online entrepreneurship course helps you to see business as one interconnected whole and empowers you to reflect upon challenges in new and innovative ways. 

For more information please visit complete the form below and a member of our team will be in contact.

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