How to Launch a Profitable Startup | 5-Step Guide for Founders & Entrepreneurs

What Are the Most Common Reasons Behind Startup Failure?

If you take the time to do proper research, you will find countless studies that thoroughly go over the reasons behind a startup failure. Starting from lack of focus and motivation to poorly adapting to market changes or weak strategies.

The numbers are not in your favor. Only one out of 10 startups make a breakthrough on the market. According to the latest analysis, the reason number one behind a startup’s failure is the market, or more specifically the shortage of product demand. It’s the main reason behind one-third of the total cases, statistics show. Unfortunately, despite expectations that they will take the market by storm, not every idea is suitable for the market at the given moment of launching.

The second most important reason is the lack of cash, however, running out of money is merely a symptom concerning other possible issues. Nonetheless, it’s a quite a serious problem considering that little less than 30% of startups fail because of this. If you don’t have enough money to pay vendors or your employees, chances are you are going to fail.

Strong competition or a weak team are frequently overlooked causes, despite their importance. Moreover, according to the list, the lack of passion was also the cause of failure, with 9% of the companies claiming that this was the root of their collapse. As the least common reason for startup failure was pivoting incorrectly or not pivoting at all.

These numbers were a part of an analysis of over 100 startup post-mortems. At Growth Hackers, we see startups like rockets: without the right fuel, guidance, and trajectory, even the best ideas can crash but with careful preparation, they can reach the stars.

So what do successful startup owners have in common? How can your recently established company approach the importance of LinkedIn or the functionality of Airbnb? They were all startup ideas once, and are now multi-million dollar corporations. Even for them, this task wasn’t simple. After all, success doesn’t come overnight. Instead, it requires effort and having a few tricks up your sleeve.

Bottom line, to reach this altitude, you will need to understand some basic rules and develop a particular mindset.

Let’s start with the basics first.

2. Ask Yourself: What Kind of Problem Are You Resolving And How?

One of the most important things when building a startup or business is knowing what the focus of your company is. This is particularly important when it comes to startups. As an owner and a CEO, you need to establish the specific focus of your work, meaning you need to determine what kind of problem you are dealing with and how you are going to resolve it.

What is your startup about? The focus of your startup is equivalent to the foundation of a building. If it’s weak, you won’t be able to build it successfully. Hence, you need to make the foundations solid and secure, in a way that the further expansion of your company will depend on it. Essentially, this means finding an effective middle ground between your skills, competencies, interests, and the capacity for getting paid.

Ask yourself these next questions:

• What am I good at the most?
• Will I enjoy doing this?
• How will this help people?
• Does the market need it?

Only after having answered them, especially the fourth one, you should proceed with the next steps. Otherwise, you will make the number one mistake concerning startup failures – the lack of product demand on the market.

3. Choose Customers & Market

There are many things starting a business always involves but extensive market research and competitive analysis are essential elements of it and you cannot do without them. I often hear “My company doesn’t have competitors” and that’s a mistake. It either means you haven’t studies your market or even worse, you don’t have a market.

Market research is one of the general rule of thumbs for new startups and businesses. This step is in accordance with the questions above. After locating what you are great at, as well as establishing that you will get personal joy from this, next thing is to review your customers’ base and the market you are trying to enter.

You need to carefully choose your target audience of consumers. Determine their age, social background, even their gender. You cannot sell your product without a specific target group. One of the biggest mistakes you can make is trying to appeal to everyone. If you try and do this in order to sell more, in reality, you won’t sell your product at all.

Besides, establishing a target group will provide you with a clear focus, prioritized resources, and a precise plan. In the beginning, you can focus on a smaller group of customers because it will be easier to satisfy their preferences.

Before working with Growth Hackers, many startups tried to appeal to everyone and sold to almost no one. After identifying the right market and customers, engagement, sales, and profitability soared. Having done this, you can now think whether your solution is fitting for the customers’ problem. If your answer is affirmative, only then you will be able to make money out of your business.

Some entrepreneurs even suggest making a survey. It’s a great way to find out whether these people are in need of your resolution, and the way your product is going to be perceived. Besides, surveys are easy to make and usually cost-effective.

After evaluating the results, the next thing you need to do is perform a simple market analysis.

You can start off by
Market volume = Penetration rate X Number of target customers

For calculating the AMS use the following equation:

AMS = Market Volume X Product Price (the product you are going to offer to the market)

Remember to be very careful and specific about it. A simple mistake and your intended revenue will go down the drain. Make sure you estimate the highest and lowest possible revenues per year. That way you will be aware of your opportunities, and whether launching a startup will really pay off.

One more thing that many entrepreneurs forget: you need to choose the right pricing strategy for your business. A lot of entrepreneurs focus on their target audience, buyer personas, market and competitors without taking enough time about their pricing.

4. Generate Income & Decrease Expenses

Now comes the hard part. After checking out every previously mentioned checkpoint on this guide, now it’s time to think about growth and money. Growth Hackers teaches startups how to maximize income while cutting unnecessary costs, turning smart strategies into measurable growth and higher profitability.

Depending on your business, you don’t necessarily have to follow these rules. However, they will give you a glance of what needs to be done, or at least considered when generating income or decreasing your startup expenses.

First of all: spend time on marketing.

Startup owners often disregard this simple rule. And it comes as no surprise, considering just how much work there is in a startup, especially in the beginning. Keep in mind that this should be done AFTER you have established a final version of the product/service that is going to be offered to the customers. Spending time on marketing and sales beforehand is usually a waste of time, money, and effort.

Make sure you that you are using smart marketing methods, based on good content and branding, instead of paid inorganic ones.

Ask for feedback and referrals.

At the early stages of your startup, it’s important to ask for referrals, and even more for feedback from your customers. It’s critical to follow your sales and use this information to improve your startup.

Track income and expenses at all cost.

Doing otherwise will seriously harm your startup and you will lose track of your growth. For this, you can purchase, or even better, make your own accounting system. It will assure you that your capital isn’t being wasted. Besides, make sure that you prioritize your costs. Spend money only on the most necessary things regarding your startup. Don’t spend them on expensive tools that you can easily replace with a cost-effective resolution.