Easily-Made Mistakes That Can Sink Even the Most Promising Startup

It will be a pleasant surprise to most to learn that according to the Small Business Administration; approximately 80% of all small businesses survive to see their second year. However, thereafter, the picture increasingly turns bleak; a https://www.forbes.com report, reveals that only around half the companies go beyond the five-year mark, and most dismayingly, only one in three businesses outlast more than 10 years. As discouraging it seems there are a number of factors that lead to small business failure and by identifying some of the most critical, entrepreneurs can improve the chances of success. Some tips from experienced small business captains:

Leaders Continuing to Manage

That there is a distinction between leaders and managers in the context of small business is not readily understood or appreciated by many. Leaders are responsible for generating the big idea, inspire others, craft a vision, setting up the business, securing the funding, and bringing the company to the launch stage. Any leader who thinks that he can continue for long to be a visionary while attending to the operational issues of the business is overestimating his capabilities. Leaders should generally stick to envisioning the long-term future of the business while managers should be left with the task of running the company profitably. Mixing up the two roles is a surefire recipe for entrepreneurial disaster.

Waiting Too Long for the Second Round of Funding

Most owners of startups remain so totally obsessed with securing the seed capitals that they completely ignore the demands of the company further down the line. After struggling for months if not years to get the initial round of capital, they are so relieved that they immediately start burning the cash without having a clear strategy in place to take the company forward with further funding. Since venture capital funds coming into the company at a later stage are typically in for larger amounts, they are also more risk-averse. Getting them onboard can take quite long and in the meantime, the business may have run out of funds. As much as you are excited about the success of your seed funding, you should immediately set into motion a series of activities for raising the second round of capital before the business runs dry. Putting in too large a gap between two rounds of funding can lead to dependence on debt; it is quite common to see startups in a debt trap and having to undertake debt consolidation programs.

Starting the PR Campaign Before the Business Is Ready to Roll

Many entrepreneurs fall prey to the temptation of going public with just a concept far ahead of the probable launch date of the startup. As a result, when inquiries start pouring in, the business is not in a position to deliver and disappoints its target audience. It is obvious that the same target audience will remember the failure of the business to deliver when it does become operational and the response then could very well be quite lukewarm. If you are not in a situation where you can have a large footprint, it is a good idea not to use the mass media because you will end up talking to customers who cannot be serviced. It is better to remain local to satisfy the customers and expand only when you are able to.

Running Out of Stocks

Most startups tend to maintain a low level of inventory to keep costs down, however, if your production base is in a developing nation several thousand miles away, a lean inventory can spell trouble if you run out of stocks because it can take quite some time to be able to start shipping again. If the customer response has been good, you simply cannot be turning the supply chain on and off just to minimize your inventory. Even if you are producing locally, you should try to make the distribution only as large as you can effectively handle. Customers who have ordered but not made the deliveries tend to get irritated for obvious reasons and will influence the rest of the market to pull away from you. Unless you have the financial resources as well as the warehousing in place, you need to keep your customer bookings under control.

Not Hiring at the Right Time

Most owners of startups tend to keep on expanding the number of things that they will do for the business simply because they think that the time is not right to hire more employees or that it is unaffordable. However, what commonly happened that the owner drives himself into the ground trying to achieve more than what is physically possible and loses sight of the bigger picture. With the funding in place and the business ready to take off, it can be extremely frustrating to see big opportunities go by simply because you lack sufficient manpower. Sustainable growth can only be achieved and managed if you have the right team in place; consider employing contractors for some tasks if you think your employee count needs to be conservative to better face uncertain times in the future. The additional expense will be more than compensated with incremental business volumes.

Not Willing to Let Go for the Betterment of the Business

The tendency of most founder CEOs to cling on to their seats even after it is amply clear that the business has grown to a size that is beyond their capabilities to manage is among the most common problems leading to stunted growth and ultimate business failure. When a CEO is unwilling to relinquish his position, it can mean missed opportunities that can prove to be very costly. Furthermore, the entire team can end up being dispirited and the performance will end up flagging. It is not unusual to see founder CEOs leading the business on a very fast growth trajectory, however, if you are not one of them, you should step aside in favor of someone who’s more qualified. Vacating the CEO’s seat is not easy but it can easily be the next big step for the company.


There can be many reasons for small business failure, however, it is clear that the leaders need to be really perceptive about how the business is performing, how it will meet the challenges of the future, and especially about factors that can hold up its growth and make it lose out on valuable opportunities.

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