The most common reasons why start-ups fail

business failure
Written by C Wolsey

Are you thinking about setting up your own business? You might have worked for other people long enough and have ideas on how to revolutionise your industry. Or maybe you want to switch careers completely and make better use of your skills. Either way, forging your own path is a brave step to take – and something that not everybody succeeds with.  

The Federation of Small Businesses (FSB) reports that the UK’s private sector business population decreased by 6.5% in 2021, highlighting the struggles that many have faced recently. And while each business is unique, many battles with the same core issues. 

Read five of the most common reasons why start-ups fail to help you prepare for the kind of challenges you might face. 

Running out of cash

Whether due to slow sales, late payments, or high upfront investment, it will come as no surprise that cash flow is one of the biggest threats to start-up survival. 

One key reason why is that start-ups can find it extra hard to get external finance. Many lenders want to see at least six months to a year of strong business performance, which automatically rules out those just getting started.  

Lack of financial knowledge is another issue. Hiring a third party to conduct a financial audit is one option if you’re not that confident with numbers just yet.  

Overestimating market demand

Another pitfall many start-ups experience is overestimating the market demand for their product. It’s important to believe in your product or service, of course – but that confidence should be backed up by solid numbers and industry research. 

In worst cases, you may find that your business idea is more interesting to you than it is to other people. But realising that before launch is better than coming to terms with it several months in.

Getting outcompeted

A 2020 report commissioned by the government found that levels of competition across the UK economy may have dropped over the past 20 years. Competition within sectors and niches varies heavily though, and some businesses find themselves swamped by newcomers and long-established companies. 

This issue relates to the importance of understanding market demand. Will your start-up offer people something different or better than the other options available?

Not balancing pricing and costs

Pricing is a fine art, especially when you’re less established and need to compete with others who have had the chance to hone their production processes and profit margins. 

Ultimately, you need to price high enough to cover your costs while not going so high that you put off potential customers. If you do go in over the market average, proving your product’s worth should be a key focus.

Are you confident that your start-up is well prepared and equipped to deal with these challenges?