The startup failure rate in recent years is almost proportional to their rate of emergence. According to the latest 2023 data, about 90% of startups fail. 10% of new businesses fail in their first year, while a mammoth 70% go on to crash within years two to five.
The major reason startups fail is lack of capital. However, the inability to connect deeply with their audience through correct marketing, and relying on gut feeling rather than data-driven decisions are big mistakes leading to startup failure. Startups also fail because they do not provide innovative solutions that stand out in the long term.
Below are the top 6 mistakes hindering startup growth and solutions to beat these negative statistics hovering over your company.
1. Not Acquiring Enough Funding
Most entrepreneurs who launch with insufficient funding end up with a failed startup. 47% of startup failure in 2022 was due to lack of financing.
Now, here’s one inconspicuous problem: while many think they have acquired enough funding to start a business, they do not.
Remember, there are one-time costs, including furniture and licenses; and recurring costs (marketing, utility bills, salaries, administrative expenses, etc.).
If you only calculate one-time costs for the first year and cannot break even and start making significant profits quickly, how do you cover expenses for the next year?
It’s, therefore, always advisable to calculate your startup costs for at least two years upfront, make a break-even analysis, and seek funding based on that.
2. Scaling Too Quickly
Even with sufficient capital, impatience and misuse of funds can cause a company to fold up.
“Rushing can cause an excess amount of capital to be used on expanding the company before the company is even ready for such expansion,” says Zoe Akinbodunse, a thought leader in entrepreneurship, management, and operations. “Channeling capital to the wrong areas will decrease the capital available to be used in the right areas and can cause the company to shut down in extreme cases.”
44% of startup failure in 2022 was due to running out of cash.
That was almost the case with CME Corp. “One mistake that hindered our growth was scaling too quickly,” noted Normand Chevrette, President and CEO. “We got caught up in the excitement of expanding rapidly but didn’t have a solid foundation in place. We ended up straining our resources and facing operational inefficiencies.”
Thankfully, CME Corp corrected their mistake quickly and avoided a collapse.
3. Poor Marketing
Most startups fail to connect with today’s skeptical audiences, leading to little or no sales.
Today’s consumers are shrewder and are averse to overly sales businesses. Imagine being bugged by ads or a marketing piece that screams “buy me” without spelling out how you benefit from it.
This is especially seen among B2B tech and SaaS startups. In an attempt to sound professional and tech-savvy, these businesses usually forget that their audiences are also humans. They use technical jargon to emphasize product features rather than benefits.
Although B2B marketing is usually more complex and requires more logic than B2C, it doesn’t trump the fact that B2B clients are humans, too.
Humans buy out emotion, so you must be able to connect with your B2B consumers by showing you understand their pains and how better their lives (and work) would be if they subscribed to that SaaS product.
While many B2B brands now appreciate storytelling and emotional connection in their marketing, I’ve seen some who still fail to do this, and they fall behind.
4. Using One Marketing Channel
If you use only written content for marketing to today’s audience, chances are most of your content will go unengaged.
Today, people have more affinity for visual content than ever before. Marketing has evolved, and video platforms like TikTok have transformed how consumers engage with brands.
If you’re not leveraging multichannel marketing in 2023, that’s like putting all your eggs in one basket—fewer leads generated, less revenue, and a recipe for disaster.
So, adopt email marketing, blogging, video content, Instagram posts, and influencer marketing, and focus on the platforms where your prospects are mostly active.
5. Not Leveraging Data and Insights
One of the common mistakes that can lead to startup failure is not utilizing data and insights for decision-making.
No one knows it all, so you don’t want to use gut feelings for decision-making in business. From marketing decisions to recruitment and product updates, what does the data say?
Here are ways to leverage data to grow your startup:
- Market research: Don’t assume you know what your target audience needs. Do market research to understand your buyer persona, competition, and market trends so you can position your marketing accordingly.
- User feedback: User feedback provides invaluable insights into the product’s usability, functionality, and potential improvements. This is especially true for SaaS startups.
“We were so focused on building and perfecting our product that we neglected to gather crucial insights from potential customers,” says Nathan Clark, Co-Founder of Gate2ai. “This delayed our ability to make necessary adjustments and improvements based on user needs and preferences.”
- Analytics and metrics: Startups should leverage analytics and metrics to track key performance indicators (KPIs) and measure the effectiveness of their strategies. Failing to set up proper analytics or not analyzing the data collected can result in missed opportunities for improvement and growth.
6. Developing a Fanciful Product with No Viable Market
Another critical mistake that can lead to startup failure is developing a product that lacks a viable market.
“Before introducing new products or entering new areas, we occasionally skipped conducting in-depth market research,” says Peter Michaels, CEO of Yeespy, a parental monitoring solution. “This led to misaligned product offerings, missing business opportunities, or entry into an oversaturated market.”
Here are factors to consider when developing your product:
- Market demand: Your product is impressive, has got powerful features, and you love it. But would it get the same love from your target audience? How useful will it be in the long term? Conduct market research to identify existing pain points, customer needs, and long-term demand for the solution. You don’t want to build your business around a product that’s nothing but a fad. It might fail as soon as that short-lived excitement dies down.
- Competitive landscape: Developing a product without considering the competitive factors can lead to a crowded market space or an inability to stand out.
- Profitability: Imagine creating a software tool that allows you to send bulk WhatsApp messages. Priced at 250 bucks. Most people might not be in a rush to buy, seeing how very few businesses use WhatsApp for marketing. And the benefit just doesn’t justify the cost.
A product looks innovative doesn’t mean people will like it. It has to be practical and useful. That’s where embracing customer feedback comes in, so you don’t spend a fortune building and marketing an undesirable product.
Now that you know the common pitfalls facing startups, you’re more equipped to confidently navigate your entrepreneurial journey. Leverage data have good money management, understand your market, connect with your prospects correctly, and success wouldn’t be too far ahead.
Victory Harry Izevbekhai is an SEO copywriter with 6+ years of experience writing content for B2B brands in SaaS, digital marketing, management, finance, and more, and has helped countless businesses globally to improve their web presence and drive traffic by implementing on-page SEO.