The majority of startups fail within the first 5 years according to the Small Business Administration.  There are a number of reasons for this.  Knowing what causes startup failures and avoiding them will give your small business a better chance of succeeding.   These are the top 10 reasons why startups (small businesses) fail.

1.  No Market Need: All businesses starts with the idea to provide a product or service to meet a shortfall in the market.  However, quite often entrepreneurs fail to test that theory to find out if their product or service is what consumers are really looking for.  To move forward successfully as a startup business you have to know whether or not your business idea will gain a large enough acceptance from consumers in order to generate the growth you need to sustain the business.  This is called product validation.  All startup should go through product validation before proceeding.  Learn more about product validation.

2.  Lack of Funding: A great management team with a great product idea will fail if they lack the funding to develop the product and bring it to market.  Funding is critical to any startup.  Funding can come from the founding members or it can be brought in from outside sources.   Don’t just raise enough money to get the product to market.  You still have to become profitable and achieve positive cash flow.   You should ask your self; how money is needed until the business becomes profitable and can sustain itself?.  There are many was to get funding for your startup.  Learn more about those sources.

3.  Wrong Management Team:  The right product with the wrong team can spell disaster.  The right startup team is critical to getting the business off the grown and growing it.  Having the wrong mix of people on the team can spell disaster.  Members of the team should have a vested interest and be able to get along, and work well together so that time is spent on building the business rather than on resolving conflicts.  The people you select to be on your team should have the requisite skill sets, experience, right personality traits and have a financial interest in the busniess.  These four items forms the basis for identifying the right people for your team and should be the starting point for building your startup management team.  This app can help you identify the right people for your startup management team.

4.  Ignoring The Competition: Ignoring the competition is another way that startups fail.  Entrepreneurs with great ideas like to think that they’re the only ones with those ideas and thus ignore the possibility that anyone else could have the same ideas.  As a result they ignore the competition to the detriment of their startups.  You should assume that there are always competitors no matter what the venture is.  Competitors consists of existing businesses in the space that you’re trying to get into as well as others who are startups just like you, who are trying to get into that space.  You should not be afraid of competitors.  Known competitors can be a source of knowledge that can help you propel your startup.  If you know how your competitors price and market their products, and how their customers’ response, you can use this information to better position your startup for success.

5.  Pricing: Product pricing is another reason why startups fail.  Pricing your products/services too high will turn off customers and pricing it too low will not cover your cost.  Determine what the right price is before bringing the product to market.  Learn more about pricing your products.

6.  Lack of Strategic Plan (Business Plan): If you don’t know where you’re going you will never get there.  A strategic plan or business plan helps you to figuire out where you’re going and assess how you will get there.  The plan does not have to be a 1,000 page document that define every detail.  It can be a general plan that outlines a general view of what you’re trying to do and how you will do it.  This is more for you and your management team to get on the same sheet of music than it is for any outside entity.  This is only relevant for an outside entity if you plan on seeking outside funding.  Having your team working to achieve the same objective will enable them to work in sync to focus on the critical tasks that will make your business successful.

7.  No Business Model:  Many startups fail because they lack a business model.  They have an idea for a product or service and they just focus on selling it over the internet, at a retail location or through direct contact with their customers without consideration of an overall way to model the business to achieve maximum sales.  Having a business model means structuring the business to achieve maximum sales and profitability.  Now that you have a product or service you want to offer you have to think of how you will offer that product to consumers.  Some products/services sells well over the Internet while others do better being sold from a retail location and yet others can sell well from either a retail location or the Internet.  You have to figure out what are the best models to offer your products/services and how to offer them to achieve maximum sales.  Learn more about modeling the business.

8.  Poor Marketing: If you do everything right but don’t market your product/service properly it could have a negative impact on your startup.  Many startups with great ideas have failed because of poor marketing.   Many startups with bad ideas succeed because of good marketing.  Don’t spend a great deal of time, effort and money developing a product and skip out on the marketing.  Marketing is crucial to getting your product noticed in the marketplace, especially when there are already competitive products/services out there.  Learn more about marketing your products/services.

9.  Ignoring Customer Feedback: Ignoring their customers is a major reason why startups fail.  The feedback you get from customers at any stage of a business is critical.  Their feedback tells you whether or not you need to modify your products or services in order to make it more acceptable.  Ignoring this crucial opportunity is a sure way to fail.  Customers are willing to provide feedback as evidenced by the many popular online customer feedback sites that exists today such as Home Advisors, Angie’s List, Yelp, etc.  Use customer feedback to build a better product and provide a better service.

10. Bad Market Timing: You have to bring your product to market at the right time and at the right place.  Failure to do so is why many startups fail.  Market timing is key.  There are several factors to consider.  Learn more about market timing.