GCE Strategic Consulting

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The blog that shares our expertise and perspective for driving business transformation, based on the successes and failures we've seen everywhere from start-ups to Fortune 500 companies.

Why Startups Fail

Why Startups Fail

If you want to start a thriving business, you need to fully understand what makes new startups succeed and fail, so you can increase your odds for a favorable outcome.

Forbes reports that out of ten new business startups, nine will fail. While companies fall short of success for a number of reasons, too many lack leadership. A void in leadership results in a number of other serious problems that can lead to collapse. Enterprises that lack vision or scalability are also likely to be unsustainable and unprofitable over time. 

Cash Shortage 

Right before a business is forced to close its doors, you will often hear that the business could not pay its bills. While there are many reasons that cause a company to run out of cash, this is often the first tangible symptom that means a business is going to go under. Even businesses that show great promise have been known to collapse due to cash management issues. 

Inc. reports that most companies are ultimately forced out of business because they don't manage their cash flow carefully and can't pay their bills. When you consider that entrepreneurs aren't necessarily cash flow experts, it is easy to see how a business comes up short on cash. 

Scalability Failures 

While this reason for business collapse may be one of the less talked about causes for closing the doors of a business, Harvard Business Review cites it as a main culprit. That is why it is highly-recommended that entrepreneurs know how to scale their business upfront before taking the plunge. What this means is having a concrete plan for how to grow the business from one stage of maturity to the next by establishing systems to manage the growth of the venture. 

If you lack scalability, then you will not be able to take the business to the next level and grow without experiencing major problems that can doom your business. Sound accounting practices and operating guidelines should be in place to ensure that the employees know exactly what to do and how to react as the company grows. These guides must explain how to adapt as the business continues to grow.

Poor Leadership 

Leadership is crucial for any startup business. Entrepreneurs are usually idea people who provide passion and a good idea to solve a problem in a new way. When these entrepreneurs lack vision or lack leadership skills, then the business will suffer. A good leader knows when to delegate important tasks to others and has a concrete vision of where they see the company in the next month, year and into the future.

Conclusion 

The excitement of starting a new business encourages many budding entrepreneurs to risk everything on an idea to improve the world. Many business people view owning a business as part of the American Dream. While this type of passion born of a need to make a difference can fuel a business long enough to get it off the ground, it takes a lot more than that to ensure its continued success. Without a smart plan for scaling the business, managing cash flow and managing employees and the day-to-day operations of your venture, it will most assuredly fail. 

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