Knowing the biggest risks that most commonly cause startups to fail could make the difference between whether or not your own business goes under.
Whether it’s bad luck, bad timing, or a half-baked business model, there are many ways a startup can go wrong. And about 20% of new businesses fail in the first year, according to data from the US Bureau of Labor Statistics.
Fortunately, new research may shed some light on the biggest recent hurdles that have frustrated startups.
Skynova, which makes billing software for small businesses, surveyed 492 startup founders in November 2022 and analyzed CB Insights startup data to the new studio which looks at the most common reasons behind startup failures in 2022.
- Lack of funding or investors. The study notes that 47% of startup failures in 2022 were due to lack of funding, almost double the percentage that failed for the same reason in 2021, according to data from CB Insight.
- Running out of cash was behind 44% of failures. While this may be the result of bad financial planningit can also indicate a shortage of available funds.
The capital problems are not surprising, considering that fears of a possible recessionamong other factors, have caused investments in North American startups to sink 63% in 2022 compared to the previous year, according to a recent Crunchbase report.
Anyone looking to start a new business in 2023 could face similar hurdles in obtaining financing as long as economic uncertainty persists.
- The impact of the current Covid-19 pandemic. While 33% of startup failures were blamed on the broader effects of the pandemic on business and the broader economy, data from CB Insight shows that number was down from 59% a year earlier, a sign that many small businesses recovered from the worst of the pandemic in 2022, even as some continued fight to get back to normal.
Tips for a successful startup from the founders
While no entrepreneur can guarantee success, the founders surveyed by Skynova had plenty of advice to offer anyone looking to take the leap and launch their own business.
When asked what they wish they had done differently when starting their own businesses, 58% of the founders surveyed said they would have done more market research before launching. The same percentage said they wished they had put together a stronger business plan.
That is in line with the advice of the US Small Business Administrationwhich notes on its website that a solid business plan is critical to the success of your startup and can function “as a GPS for how to structure, manage, and grow your new business.”
Also extremely important is the ability to think quickly and make necessary changes in case your plans don’t work out as well as you hoped. When asked for their best advice from aspiring founders, 79% of those surveyed by Skynova told those hopeful entrepreneurs to “learn from their mistakes.”
They seem to be speaking from experience, as 40% of the founders surveyed said they had previously tweaked their startups in some way to avoid failure. And 75% of them said pivoting helped lead to success.
The most common types of pivot seen by founders were making changes to their business plans and launching a new product or improving an existing one.
Realizing that your startup is on the road to failure and successfully pivoting to avoid disaster is a skill any successful entrepreneur could use. In fact, lack of pivot is one of the most common reasons startups fail, according to CB Perspectives.
“Shark Tank” investor Kevin O’Leary formerly told CNBC Do it that their own money-losing investments often have the same thing in common: startup founders who can’t or won’t make changes when necessary. In many cases, these founders simply refuse to admit that their original business plan needs updating in order to survive.
“They can’t get out of their own way,” O’Leary said. “They won’t listen to anyone else.”
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