6 Reasons Why Startups Fail (And How You Can Succeed!)

July 3, 2023

“In the United States, 45% of small businesses fail within their first five years”

Donald Miller “How to Grow Your Small Business: A 6-Step Plan to Help Your Business Take Off”

Embarking on the journey of a startup is like stepping into a thrilling roller coaster ride — full of excitement, anticipation, and the promise of success. 

Yet, amidst the twists and turns, many startups unfortunately come crashing down, such as WeWork, Quirky, and Juicero. In the United States, a full 25 percent of small businesses fail within the first year, while 45 percent fail within five years. The harsh reality is that not every entrepreneur or business owner will succeed in their ventures due to various factors. 

In this article, we're going to uncover the top six reasons why startups stumble and fall and the valuable lessons you can learn from their mistakes.

1. Leadership with No Clarity

  • Do you feel like you're just trying to keep your business afloat instead of thriving in your industry? 
  • Do you clearly know your vision, or are you making up priorities as you go? 
  • Do you and your team remember what your business mission statement is?

Good leaders are responsible for piloting the organization in the right direction that leads to success. Many companies started with an incredible idea, but without the right leadership team, they are unable to achieve their highest potential. Just take a look at how Alan Mulally transformed Ford from a business on the brink of bankruptcy into one of the world’s leading automobile brands. 

Having a visionary leader that is capable of setting clear business goals can make or break a company. Most small businesses have ambitious goals, but they lack clear articulation and contain too many abstract definitions with no concrete action steps. As a result, their team members find it difficult to grasp the mission and understand the individual roles they play in achieving it — reducing work efficiency and hindering business growth.

To give your team a clear picture of where your organization is headed, you need to craft a clear mission statement that contains three measurable economic priorities that will sustain the business. Besides that, you also need to include a specific deadline and talk about the importance of the mission in your statement. The Business on a Mission Framework created by Donald Miller can help you create a unifying vision for the people you lead.

Here are some examples:

  • A beverage company: We will increase our distribution to 30 more restaurants, four more grocery store chains, and 60 convenience stores by . . .
  • A magazine: We will increase our subscriber base to 10,000, our advertisers by 40 percent, and raise the average customer advertising investment to $22K by . . .
  • A consulting firm: We will serve 30 new clients, sell 5 new retainer packages, and receive 98% client satisfaction survey results during the period of .”

You and your team will also have to develop certain Key Characteristics in order to achieve your mission. Identify a specific set of skills or personality characteristics necessary to work for your company. This sets the foundation for your team to be able to sell the products to your customers, push your team forward amidst challenges, and create a cohesive company culture.

Lastly, you must define three Critical Actions that must be done daily to move the business toward its three financial objectives. By doing this, you cultivate habits among your team members to move the mission forward, closer towards success. 

2. Confusing Marketing Message

Your sales volume has been stagnant for a period of time, but you can’t seem to figure out the root cause. Here are a few questions to reflect on:

  • Is your website and marketing collateral able to convert leads into sales?
  • Have you created a loyal brand following to generate a steady flow of sales income?
  • Can your customers understand your brand message and distinguish your brand from your competitors?

If you answered “no” to any of the questions above, it’s time to evaluate your marketing message. 

Many businesses have good products, but few can clearly communicate their value proposition to the public. A lot of businesses prioritize the visual aspects of marketing – beautiful photography, vibrant colors, fonts that embody the brand personality. However, they forgot that at the end of the day, the most essential and core part of marketing is the brand message and story that they infuse in their marketing collateral. Without a clear story to tell, customers will not be able to relate and choose to do business with your brand. 

If you don’t have a brand story yet, or find it difficult to communicate it in a way that matters, you can use the StoryBrand Framework to help you. It explains the seven plot points of a good story and delivers seven Soundbites you can use to invite customers into a story for any content form and channel; whether it may be your website, social media, or sales emails. 

The most important point in the StoryBrand Framework is that your customer is the Hero and you are the Guide. Your customers have a Problem or pain point that they want to solve. It’s your job to present them with a solution that can help them achieve their desires. 

To position yourself as a Guide, you need to express empathy in your marketing by acknowledging and understanding the pain and struggles your customers face. Additionally, you need to demonstrate authority by showcasing your expertise in helping customers find solutions to overcome their challenges. This portrays authenticity, creates trust, and encourages repeat purchases among your customers.

The heart of your marketing lies in your brand story. Your marketing effort should focus on one clear objective: to explain how you can help solve your customers' pain points in a clear and simple language that everybody understands.

3. Lack of a Proper Sales Framework and Script

Marketing and sales go hand-in-hand; they are like the left and right engines of an airplane that work together to push it through the air. You can invest a lot in a marketing strategy, but without effective sales efforts, your business may struggle to gain the desired momentum.

An outstanding business owner should also be an expert salesperson. Evaluate your sales effectiveness with these questions:

  • Do you know how to write a high-converting sales email?
  • Does your sales team find it difficult to explain what you do and sell your products to potential customers? 
  • Do you feel confident when discussing the financial aspects of your business pitch with potential investors?

If you answered “No” to any of the questions above, it’s time for a mindset shift.

Many of us still (mistakenly) perceive salespeople as inauthentic and dishonest, believing that they are only in it for their personal gain.

There is a way to sell your products or services without coming off as sleazy. You can do that by centering the conversation around your customers. You have to make them the Hero and position your business as a trusted Guide who’s there to help them solve their problems. 

You can do that by following “The Customer is the Hero” SalesScript:

  1. Start with a problem
  2. Position your product as the solution
  3. Give the customer a step-by-step plan
  4. Paint the stakes (negative or positive)
  5. Call the customer to action

Your focus should be on genuinely discovering if the person you're engaging with has a problem you can solve, rather than pressuring them to buy a product they may not require. By prioritizing their needs and narratives, you can skillfully guide them towards a purchase that brings resolution to their story. 

4. Focusing on the Wrong Products

Many cash-strapped business owners will turn to creating and selling new products to increase their cash flow. But is that the right solution? Use these questions to decide if you should come up with a new product to increase your profitability.

  • Have you implemented upselling strategies for your current products?
  • Is there an actual demand for the new product? 
  • Have you taken into consideration the actual cost of creating a new product?

Your products are similar to the wings of an airplane; they are an integral part of your business. To ensure a plane flies high, it needs large, light, and sturdy wings. 

Many small businesses face liquidity problems after launching new products because they develop them without considering their cost or their demand. This is a common mistake: you may release a product that covers its production costs, but you fail to factor in other fixed costs like rent, administrative expenses, and more.

Creating and selling new products is not the only way to grow your revenue rapidly; this is only applicable in a saturated market, which is often not the case for most small businesses. Instead of developing new products, a more practical approach to increasing your profit margin is to sell more of the products that generate the most profit. 

By fully tapping into the potential of our current offerings, we can grow our revenue without the additional challenges of launching new products. Besides that, you should also consider letting go of the products that aren’t selling to streamline your product offering.

5. Incurring Too Much Overhead Costs

A good indicator of a sustainable business is how well your team performs in your daily operations.

  • Are your daily operations focused on achieving your organizational goals?
  • Do you feel like your team meetings are not producing the intended results?
  • Are you conducting regular performance reviews on employee performance? 

Airplanes limit our baggage weight for a reason: to keep the plane lean and light so it can fly high and far. It applies to running a business too: the products we sell and the sales we gain should not be a burden on your overhead costs, they should cover the overhead necessary to run our day-to-day operations. 

What is the main cause of excessive overhead costs? For small businesses, labor costs are usually the most significant expense.

A crucial step to lowering overhead costs is to streamline your team into a group of focused professionals to increase efficiency. Cut down on time-consuming meetings; utilize just five meeting types to create a reliable workflow, align your team around your three economic priorities, and keep your labor force lean.

  1. All-Staff Meeting: To remind everybody on your team of the mission and, specifically, the three economic priorities.
  2. Leadership Meeting: This meeting is the least formal of all the meetings but it still has a template that will make sure it is quick and effective.
  3. Personal Priority Speed Check: Focus on each person’s responsibilities and ensure that everyone feels supported as they contribute to the business.
  4. Department Stand-up: Ensure each department is working on initiatives that support the three economic priorities of the business.
  5. Quarterly Performance Review: These conversations are a mix between management and coaching to assess each team member’s performance.

With these five meetings, you can increase focus and efficiency for every team member. You can start streamlining your operations with the help of “Management and Productivity Made Simple Playbook”. This will ensure that your overhead costs will be an investment to grow your business rather than a spend. 

6. Lack of Financial Control

Want to know if you’re managing your business finances properly? Here are some evaluation questions:

  • Are you utilizing your business financial statements to make decisions?
  • Do you find it hard to keep track of financial transactions of your personal and business accounts?
  • Do you conduct a monthly, quarterly, and yearly financial evaluation to make sure that your finances are doing well?

As obvious as it is, the most important thing to keep a plane flying is to have enough fuel. In this case, your business’ cash reserves are like the fuel of a plane — without cash, your business will crash. While many small business owners may know how to generate revenue, they don’t always know how to manage or allocate it properly.

Business Made Simple’s “Small Business Cash Flow Playbook” can help you transform your business’ financial health by helping you implement the five checking accounts to control your cash flow and finances. A healthier cash flow means that you can invest your money back into your business, have enough money for emergencies and to pay taxes, and know in advance when your profit is shrinking.

What are the five checking accounts?

  • Operating Account: This account serves as the central hub for all financial transactions. All incoming revenue will be directed to this account, while outgoing payments, including the owner's salary, will be made from this account.
  • Personal Checking Account: This is the owner’s personal account where the owner takes a fixed salary from the operating account once or twice a month. The owner does not take money from the operating account for personal use.
  • Business Profit Account: When the operating account exceeds a certain amount, transfer the excess into your business savings account — it will eventually grow to five or six times your monthly overhead, and becomes the organization’s safety net.
  • Tax Account: Split your business profits between your savings and tax account to ensure you’ll have enough to pay taxes. If tax rates are lowered, you will have savings to give yourself a solid return at the end of the year.
  • Investment Holding Account: Your business profit account also has a pre-set top threshold that is five or six times your monthly overhead. Invest any amount that exceeds the threshold to earn more and diversify your revenue.

Propel your business to greater heights

If you want to propel your business to success, you need to have a holistic understanding of your business to ensure that every component is operating smoothly.

Here at Circularity Coach International, we help business owners and leaders gain a bird's-eye view of their businesses and industries using world-renowned frameworks such as Donald Miller's “Business Made Simple” concept through the “Small Business Flight School” program.

What is included in the program?

  • A 6-month video training series to completely overhaul your business
  • Access to the members-only Flight School Community
  • Quarterly Q&A Calls with Donald Miller
  • Weekly Q&A calls with a Business Made Simple certified coach
  • 6 private sessions with Coach PINK (Maxim Mulyadi) to ensure thorough implementation across your business functions
  • 6 Mastermind sessions with other Entrepreneurs facilitated by Coach PINK to get inspirations from other industries

Coach PINK will help you execute a 6-step business growth plan:

  1. Leadership: Identify and prioritize three initiatives that will make your business more money.
  2. Marketing: Create a marketing funnel to generate consistent business and predictable cash flow.
  3. Sales: Create a sales conversation that will help you and your team confidently close more deals without being salesy.
  4. Products: Perform profitability audits and install product briefs to ensure your product offering is highly lucrative.
  5. Operations: Install a management and productivity system that will keep your operation costs low and your productivity levels high.
  6. Cash Flow: Learn to use five checking accounts so you can manage your finances with zero confusion or stress.

Whether you are an aspiring entrepreneur or small business owner, these concepts will help you define your business mission to ensure that you have a clear direction forward. You will learn how to cultivate a strong company culture and allocate resources wisely to build a sustainable business. 

Want to unlock the secrets to doubling your business revenue and thriving in a dynamic business landscape? Stay up to date with our upcoming webinars and workshops: https://circularitycoaching.eventbrite.com/

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