Most early-stage companies fail. According to the Bureau of Labor Statistics, 50 percent will be gone within five years and 65 percent within a decade. Even when they have a great idea. Even when the principals are committed to the vision. Even when they think they’ve raised sufficient capital.
These must sound like bleak statistics if you’re a founder who believes plentiful resources are the key to fast growth. But trends and statistics tell just part of the story.
According to Esther Kestenbaum Prozan, a multi-industry C-Suite executive and author, success depends on both your mindset and the methodology that helps you grow — which isn’t solely dependent on capital. In her new book, Bigger & Better: A Playbook for Quickly Scaling Your Small Company with Limited Resources, she reveals that creating lean, exponential growth is absolutely possible. Founders and growth teams, regardless of industry or locale, have to make a series of intentional decisions to propel the business forward, or else they could easily become another statistic.
Why Small Companies Fail
Funding is only one piece of the puzzle: Let’s explore some other reasons why most startups don’t make it.
1. The Product or Service is Not Filling a Deep Need
Running a business without offering what people want is like trying to sail a ship without wind. Just as a ship relies on the wind to fill its sails and carry it to its destination, a business relies on the desires and needs of its customers to drive its growth and prosperity. It may be a terrific concept on paper (or on-screen). Your social circle and potential business partners may be wildly supportive. And it might be a product or service that could benefit the masses — but only if they buy in, literally.
Doing your due diligence in market research will tell you, in part, whether the idea has a product-market fit. Additionally, aim to find a specific customer and build your offering in response to their need. Otherwise, you can have great technology, data, and advisors. But, if your product doesn’t solve a customer pain point in a scalable way, then you don’t have a customer.
2. The Market is Overly Saturated
Are you trying to sell a product to a saturated market? Attempting to compete in a market that an established brand already owns? Or do you envision the entire country (or world) as your demographic? Nothing appeals to everyone, not even Taylor Swift, although, like the music itself, her demographic has a lot of crossover.
Once you’ve done your market research and determined you have a viable idea, define your niche. The narrower the niche, the better you can get to know your audience and what they most want in your service or product. Far from excluding potential customers, a narrow, well-defined niche can help you attract more of your ideal customers more easily. Pick a niche that is not easy. One where others fear to tread. If you solve a hard problem that is in demand, your conversion rates will be astronomical.
3. Failure to Create a Solid Yet Flexible Plan
The U.S. Small Business Administration says a solid business plan can function “like a GPS for how to structure, run, and grow your new business.” While it can be informal — think of all the brilliant ideas that are initially sketched out on restaurant napkins — a business plan is a crucial tool to help you articulate the steps and details of how your business will operate. The days of huge, voluminous plans are gone. Show what problem you solve and how large it is. Demonstrate a growth plan, show how you will implement it, and then project it out in 3 years.
Once your plan becomes part of your company’s DNA, you’ll be able to refer to benchmarks and celebrate milestones. A business plan can help you secure investors who will be able to see you’re serious about your venture, organized enough to spell out the steps, and unafraid to share the details with your team. With that said, remain agile, and as you learn new information, don’t be afraid to edit the plan.
4. Ineffective or Outdated Marketing Tactics
Unless you have experience in marketing or promotion, odds are you will struggle to do it well. You can hire a marketing or branding expert if the budget permits. But there are some basic steps every entrepreneur can take at the outset that won’t put a crimp in your finances and will help position your business well from the beginning.
Many founders neglect to build and optimize a simple website with landing pages designed to drive traffic and build trust right from the start. Blogging is also an essential marketing tool in today’s marketplace: the average B2B buyer consumes 13 pieces of content from a specific provider before deciding whether to make a purchase. A blog showcases your expertise and helps your potential customers get to know you.
Too many startup founders ignore social media, feeling too busy to spend time on TikTok or Facebook. Yet these social platforms may be where your core market hangs out — so you’re missing a golden opportunity to build brand ambassadors who will build brand credibility for you.
What you really need is a comprehensive content strategy that includes text and video with multi-platform distribution. Even better, finding partners with which to co-produce and co-market content will expand distribution for all the partners involved.
5. The Wrong People Are Leading the Business
Your brother-in-law may be an ace when it comes to family, fishing, and even business, but if he doesn’t know a thing about early-stage companies, he may not be the right person to hold the reins with you. Maybe he’s excited to be part of the business but can’t think on his feet and handle constant change. Either scenario can be problematic when establishing a startup with limited resources.
Find people who have traveled down the path you want to travel down. If you’re a company that wants to grow, find people in sales, marketing, product development, technology, etc., with a track record of that very thing. They will have the battle scars and experience you need and the optimism of knowing it can be done.
6. Poor Management of Funds
You may raise a significant amount of capital only to see your ledger hemorrhaging money down the road. Even with a solid initial cash flow, the business may not be managing expenses appropriately. For example, investing in high-end office furniture or other non-essentials instead of plowing revenue back into the business so it can start generating profits. There’s a reason the startup mindset is known as bootstrapping.
Entrepreneurs need to conserve their early capital and become creative in doing more with less. Or, you may discover that your idea takes off, but problems arise that require a deeper investment in technology, repairs/refunds, or additional resources, which strains your cash reserves along with the stakeholder relationships. The solution isn’t all about frugality, which has its limits. Think deeply about how much money you need to hit your goals, then plan for bank financing and fundraising to help you get there.
7. Lack of Passion for the Mission
Who are you building for? Believe it or not, some founders develop a product or service they don’t care about, and this lack of alignment between company and consumer naturally leads to disaster. For instance, a startup that wants to create a technology app that consumers want and need but doesn’t care about the actual usage or industry the product will serve will have difficulty meeting those customers’ needs. The market is there, but the wrong people are choosing to serve it.
That said, you can become deeply passionate about your work if you understand its impact on your industry. For example, you’re a fully integrated 3PL for apparel, providing forward (fulfillment) and reverse logistics (returns) services. That is what you do. But what does it mean for apparel companies to quickly and efficiently move returned products into the same-season sales cycle as first quality? It’s financially transformative. It also reduces waste sent to landfills by millions of units a year. So before you discount your passion for your company’s work, think deeply about what it actually means. You may find some real passion in the most pragmatic of places.
Small Companies Must be Intentional to Survive — and Thrive
The adage about doing what you love holds as true for startups as in finding a job: if you want to increase your chances of achieving long-term success and sustainability in the competitive business landscape, choose a field or industry that captivates you, find a genuine consumer need and a product or service to alleviate the pain, and align with the right people, marketing, and financial support for this business. Instead of being one of the statistics, your startup will not only survive but thrive for years to come.