5 Early Warning Signs of Startup Failure and How to Succeed
| 4 minutes read
The odds are stacked against startups. There are all kinds of things that can lead to a startup quickly closing its doors. No startup founder starts their business thinking that they will one day fail. They may be afraid of it happening, but they wouldn’t begin to if they thought things wouldn’t work out. Whether it’s a life or a business, it’s important to focus on the early warning signs of startup failure that we get. Warning signs in business can save your hard-earned money if you react on time, or else your business will go down, and the story will be over.
These early warning signals are like the leaves turning colors in the fall. It is a slow indication that things are getting ready for change. We often notice it, but the first cold snap or winter snowstorm still catches us off guard.
The following are a few of the major signs that your startup might be on the road to failure. The hope is that if you’re in one or more of these positions, you’ll be able to take a step back and see if there is a way to fix your business.
5 Early Warning Signs of Startup Failure
- Difficulty Acquiring Leads And Losing New Customers
- Unable To Narrow Your Target Customer
- Business is Booming, But Still Facing Cash Crunch
- No One Wants Your Product
- Overly Optimistic Estimates
If any of the following indicators apply to your business, it’s time to step up your game before it’s too late.
1. Difficulty Acquiring Leads And Losing New Customers
Acquiring new customers is the lifeblood of a growing or a new business. If you want to grow in the long term, you’ll have to find a unique way to acquire customers. You can dip into the well with current customers, but that’s more a short-term strategy. New customers are the key to growth and success.
If your startup struggles to acquire leads and customers, it’s a sign that things are stagnating, and you’ll be in a difficult position if current customers decide to go elsewhere.
2. Unable To Narrow Your Target Customer
It’s good to go into your startup with a narrowed target customer. But you might find that you entice different types of customers as you get going. This is absolutely fine as long as you start narrowing things down again once you figure out the best customer. If you find that your customer base keeps getting broader and broader, you’re treading on murky (foggy) waters. This can lead to your business trying to be everything to everyone, which can relate to higher costs and high numbers of unsatisfied customers.
Related Post: 5 Realistic Tips to Build a Successful Company
3. Business is Booming, But Still Facing Cash Crunch
This is the most common issue almost every startup faces, especially during the initial days. About half of the businesses that fail state a lack of working capital as the reason for going out of business. As your company grows, you’ll get more orders — but you often must fulfill them before receiving payment. Orders like ‘Pay later or Cash on Delivery (COD) can put you in trouble if you don’t have a good money backup.
There are some solutions for cash flow issues. If the problem is growth, then a small-business loan may get you past the hump. However, avoid taking on too much debt when money is limited in your hand. You could also touch base with late-paying accounts and only extend credit to those with a history of settling on time.
4. No One Wants Your Product
Unfortunately, you may run into a situation where there is a lack of market demand for your product. And this generally occurs when customers get an excellent alternate product that satisfies and solves their problems.
Think about some of the trendy products you’ve seen on television infomercials over the years. After a flash of interest in trendy items, there is no longer a need for them. Successful startups evolve and add new items or feature the same audience finds interest in.
Suppose you misjudged how popular the product would be with consumers. In that case, it’s never too late to take a step back and figure out if there is an issue with the item’s design, too much competition, or you simply need to sell something different entirely.
For example, Tiffany & Co. was originally a stationary store. Hasbro sold school supplies before it sold toys. If your product isn’t working, it’s time to shift focus. Shifting focus on time can save a lot of bucks.
5. Overly Optimistic Estimations
If you don’t believe in yourself, then nobody else will. Optimism is good in business, but if you continuously think that things will work themselves out, you’re setting yourself up for failure. It’s better to be always preparing for the worst. Bad things happen to every business, and every entrepreneur should be ready for this. It’s just a matter of when. If you’re prepared for those situations (like having extra money backup), then you’ll be able to handle them and see it through until the upswing.
What can you do before you give up on your startup?
Well, you may try these changes.
- Understand Your Target Market
Plan a strategy that connects you with your ideal (target) customers. You must understand them at a deeper level. Understand their pain points, what motivates them, and what they’d like to see done differently.
An excellent place to get started is to conduct some customer development interviews. Set up communication channels on social media and your website and engage with your customers.
- Embrace Productivity Tools
If you have cash flow challenges, it’s counterproductive to hire a big team when the business is still young. Instead, consider investing in business tools like the Microsoft Office Suite for Mac. Choose tools you can use for bookkeeping, productivity, customer engagement, and communication. While they might be costly at first, they’ll pay off in the long run as they don’t sustain monthly overhead costs.
Do you see some of the signals in your business mentioned above?
Hopefully, your startup is off to the races and doing great. There are some outstanding startups out there that experience growth and handle the issues that arise with the appropriate response.
But many struggle and signals pop up, and eventually, things go south, and often they go south in a hurry. Hopefully, you’re able to recognize what is happening in your company and get things turned around before it’s too late.