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Three Reasons Start-ups Fail

Written by: Karen Rands

Article Overview: This article describes some common reasons that new businesses fail and offers ideas on how entrepreneurs can be successful with regard to planning and funding.

Three Reasons Start-ups Fail

There are a myriad of reasons that new businesses fail, but the failure rate has remained relatively constant over the years and, not surprisingly, the reasons for the failures can also be consolidated into some specific, recurring categories.

According to Karen Rands, President of the Network of Business Angels and Investors, there are three primary areas where entrepreneurs run aground:

1. Trying to do it all themselves. Companies that have an experienced advisor or Board are significantly more likely to receive needed funding and to be successful.

2. Poor advance planning. In addition to a compelling business plan, start-ups need a long-range strategy to keep them on course. Nearly 25% of businesses fail between the second and fifth years.

3. Inadequate funding. Many companies start with the bare minimum they need to get going. Once this pool of capital is gone, they find themselves in a negative cash-flow situation from which they never recover.

Mark Cuban (Dallas Mavericks owner), feels the most alarming trend facing the economy today is "the administration's ignorance of how entrepreneurs start small businesses. The President does a good job of communicating with high-profile businesspeople, but he has done nothing to make it easier for start-ups." (Forbes Magazine 1/4/2010)

A Small Business Administration study in 2009 indicated that over 50% of new businesses in the US do not make it to the five year mark. Small businesses need advice and assistance to put them in the "success half" of that equation.

"What I'm seeing", says Ms. Rands, "is that investors have become much more selective (since the market downturn), and entrepreneurs need to be more savvy and more thorough in order to attract investor interest. And that means being more prepared."

So what's the answer? Simply put, seek out help with initial planning and funding. Bring an advisor or coach on board who has been successful themselves and helped others to be successful. Mark Cuban doesn't coach the Mavericks and you shouldn't expect to build success without proper counsel.

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Article Tags: business capital, entrepreneur, funding, new businesses, startups



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