If you make it past year five, you have a lot to be proud of, but the struggles still aren’t over, with only one in ten businesses ultimately surviving. It’s almost enough to make you want to give up and go home. The thing is, you might just be one of the lucky 10%, you just need to take a few precautions. So, what’s going wrong for all these failing startups? And how can you make sure that your business doesn’t become just another statistic?

Why are so many startups failing?

Starting a business is easy. Literally anyone can do it. But as an accountant specialising in ecommerce – one of the sectors with the highest early failure rates – I’ve noticed three common features in businesses that fail to reach their full potential.

Lack of preparedness

While anyone can start a business, if you don’t know what you’re getting into, you may not wish to see it through. Because what many people don’t realise is that getting a business off the ground is really hard work. It takes so much more than coming up with a good idea or finding a product range to sell. In reality, starting a business takes time, effort, money, and in many cases, a lot of your sanity! A new business can take over your entire life, which takes a significant toll on relationships. So, if you’re not prepared to put in the hard yards, it doesn’t matter how many business courses you invest in, you’re never going to see it through. 

Jumping on a trend

Thanks to social media, the world is more connected than it has ever been. Consequently, we’re all exposed to new ideas almost every day. And a lot of people use that exposure to their own advantage – developing products and service ideas to answer the needs of whatever digital niche they’ve been exposed to. Some of them have been wildly successful – in 2010, Warby Parker used social media to launch their digital optometry business, sending out frames for people to try at home. By 2018, it was a $1.75 billion business. Proving to everyone that success can happen. But it can only happen if no one else is jumping on that trend. Once a trend hits the internet, it’s no longer an original idea, so too many startups get squashed out of the market because they’ve been so focused on their idea that they’ve forgotten to research their audience, their competition, and their basic business model.

Limited business experience

I’ll say it again: anyone can start a business. But it takes passion, determination, and knowledge to successfully run one. Startups are typically founded by entrepreneurs, and in many cases, this means that they have little grasp of financial literacy. From understanding how to use a balance sheet to the fundamentals of profit and loss. And without that basic comprehension, it can be incredibly difficult to make the right decisions necessary to drive the business forward.

There are some startups that all three of these points will apply to. But being aware of the potential pitfalls can empower you to take evasive action and give your business the best possible start.

What can startups do to improve their chances of success?

Success in startups more often than not comes down to time, knowledge, and focus. So, before you start, make sure that you really understand how much time you’ll need to commit to the business. The chances are that it will be far more than you imagine. If you can’t commit to that time, or you feel reluctant to do so, save yourself the effort and money, and do something else.

You don’t have to start a business knowing everything you need to know. But you have to be willing to put in the energy to acquire the knowledge you need. That includes the core principles of running a business – financial management, data management, people management – as well as research relating to your product, your market, and the territories you’re likely to target.

On top of that, you need to keep a clear focus. Define what you want your business to achieve in the first year – it might be sales, customer acquisitions, or product building – and keep your eyes on that target. At the end of the first year, reassess, and work out what you need to do in the next twelve months to ensure your business succeeds.

An average of around 750,000 new startups are registered in the UK each year. 90% of them won’t make it beyond their fifth year. It doesn’t have to be this way. But if you want your startup to succeed, you have to learn how to run a business.

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