Starting a company is one of the hardest things you can ever do – and often the outcome isn't a billion-dollar exit or even a company deemed successful. The high failure rate that occurs in the startup world can be attributed to many different factors, but often, it comes down to these four recurring problems.
1. You are still building the wrong product. The biggest mistake you can ever make as an entrepreneur is to build something people don't need. Once you create a perception about what you think people will need, you are already shooting yourself in the foot. One of the best ways to build something people could actually pay for or use is to involve the end users or prospective customers in the process – from the get go.
Do your homework, get out there and talk to people about what you intend to build. Ask your prospective users if they will use it. Once you gather enough evidence about the need for the product, you will spend less resources trying to convince people to use it when it's done.
Most of the great startups started as something the founders were passionate about. Start with what you want, validate and focus on making it awesome.
Related: 9 Reasons Why Most Startups Fail
2. You can't adapt or change direction when necessary. If the founders can't give up the original idea when required and make a necessary pivot, the business could be heading for a dead end.
Most startups that fail have specific unchangeable goals they want to achieve. The fast-changing business landscape demands plans that can be re-visited and altered if necessary. Roles, leadership, goals and teams should be open for discussion when things are not going as planned (most of the time they never go as planned). If you have no idea when to pivot while there is still time and capital, you are in trouble.
How flexible is your business goal? Successful startups are the ones that can change direction and the initial idea in the interest of a better version people really want. Startups are meant to evolve and grow into a remarkable company, and there is nothing wrong with making tweaks and sticking to what sells.
3. Your market isn't big enough. You need an existing market that is big enough to be successful. How big is your current market? How do you sustain growth in a market that is virtually not growing? You could be building an exciting or innovative product, but if your market is not growing, you will eventually struggle to sustain your business.
Some entrepreneurs believe certain markets are underrepresented but primed for growth, so they jump into that industry. The truth is, there are usually good reasons why those markets are often neglected. Do your research and stick to markets with opportunity for significant growth.
Related: 13 Startup Red Flags to Avoid
4. You are spending too much money too soon. Raising funds is a tough process and most startups don't get to raise money at all. Your funding process should start well in advance before you run out of money. If your startup is spending too much money, and you still don't know how you are going to raise your next round of capital, you should be worried. Your business should not run into a scenario where you do not know how much runway you have left.
If you know your runway and know you are running out of cash, you should be executing a plan to fix the situation. You should be focusing on keeping expenses under control. The funny thing about most startups is that before they raise capital, they stay lean, spend less and keep expenses under control, but as soon as they raise money, everything changes. Suddenly the frugality disappears.