There is really only one way to get rich if you weren't lucky enough to be born into money. You can't work for someone else. You have to launch your own business.
Yet, the vast majority of new businesses ultimately fail. Fortunately, they generally fail for the same reasons.
The folks at Technorian, a British computer company, put together an infographic listing dozens upon dozens of common reasons why promising startups fail. I can take issue with a few of the reasons they describe, but most of them make sense.
I include it here not to dissuade anyone from taking the plunge as an entrepreneur, but as a reminder of the pitfalls we need to be wary of--as founders, of course, but also as employees or investors.
Here's a summary of 39 of the most common reasons startups fail. (You can also download the full original infographic here, for free.)
1. The founders get into business for the wrong reasons.
It's a paradox; people who launch businesses are the only ones who have a chance at making big money, but if that's the only reason you get into it, you're facing an uphill battle.
2. The business idea doesn't address a market need.
This is a core, basic issue. Why would anyone want to be your customer?
3. They don't understand the competition.
Sure, you can distract yourself by focusing too much on the competition. But not understanding them can often be fatal.
4. The idea is too close to another's business--no competitive advantage.
This is an offshoot of the previous reason. If you don't know the difference yourself, how can you articulate it to a customer?
5. The idea is just that--an idea, not a product.
Classic pitfall--companies come up with interesting processes or technologies but haven't figured out the market utility.
6. They don't safeguard their intellectual property.
As a recovering lawyer, I think you can overdo your concern in this area in the early going in many businesses. But when you have a serious business, you should have serious IP protections.
7. They don't have a real business plan.
I don't just mean that they don't have a pretty pitch deck. They don't have an actual plan to grow the business through different stages.
8. They aren't able to pivot when the market dictates change.
No business plan survives contact with the market. But not having a plan at all makes it harder to change the plan.
9. They don't have a plan B or a plan C when plan A fails.
Related, certainly--it's always smart to think about contingencies ahead of time.
10. They are led by people who haven't had good mentors.
Not every great leader has the benefit of great mentors--but most do.
11. The cofounders don't get along.
Small disagreements become bigger ones, and the company is left with nobody holding the rudder.
12. The cofounders shouldn't have chosen to work together to begin with.
I'm a firm believer that cofounders should always have worked on something together before launching a business.
13. Investors aren't sufficiently interested in the company's success.
Really? The investors? In an ideal world yes, they should have a stake in your success that goes beyond the financial.
14. The leadership isn't actively involved in the business.
I sometimes hear from wannabe entrepreneurs who say they have a great idea for a business; they just need someone else to run it. Recipe for failure.
15. The leadership is too involved in the business.
Here, I think we're talking about leaders who spend too much time working "in" their business, instead of "on" their business. Usually it means they can't delegate effectively.
16. The leadership has grand plans but no ability to execute.
In this case, the leaders aren't even worthy of that title. Leaders have to lead. Plans are cheap; it's execution that mattes.
17. The leadership weds itself to bad advice.
This can happen to almost any leader, and it's largely a matter of having insufficient confidence in your idea and your abilities.
18. The leadership has domain expertise -- but no real passion for the company.
Related to number 13 in a way. Here, we're most often talking about entrepreneurs who waited too long to start their ventures. They're burned out before they even light the fire.
19. Egoism, inattentiveness, burnout and inflexibility.
20. Failing Financial Rule #1: they run out of money.
I once knew an entrepreneur who called this rule "DROOM"--don't run out of money. When you do that, you're usually done.
21. The flip side of that--they spend too much time raising money, not enough on the business.
In truth, this often means that they "have to spend too much time raising money." Sometimes that's necessary, but other investors seem to think that's the entire game.
22. They make financial mistakes (sloppiness in keeping track of numbers).
If you think this could never happen to you, take a look at the history of the personal assistant company Zirtual, where a simple accounting error upended everything.
23. They resort to poor sources of investment (money is good, but the wrong money can be really bad!)
I get it. If you're worried about running out of money, it's tempting to take any investment, no matter the terms. But there's such thing as bad money.
24. They don't prioritize employees.
People who don't feel valued are unlikely to stay around for long. Maybe they'll stick for the money or the chance to do something cool--but they won't develop real loyalty. Someday, that will be tested.
25. They hire B players--or worse!
A bad hire is very often worse than no hire at all.
26. They might hire good people, but don't hire well as a team.
This is a tricky issue, and has a lot to do with company culture and recruiting the right people.
27. Their product launch timing is poor.
I almost hate that this is buried at #27, because it's huge. Timing is a very big deal in the life of any startup.
28. Their physical location is subprime.
This could be the case for many reasons. They might really need to be in a hot area in order to attract the right talent. Or they could wind up sinking big money into overhead because they overvalue their address.
29. They have ineffective marketing.
Well, yeah. This could be (and is) the subject of many individual columns.
30. They can't differentiate from competitors.
This is of course related to #3 and #4 above, except that it's more about the inability to articulate differences to potential customers, versus the ability to understand them internally.
31. They don't have a good sales team.
In truth, the CEO should be salesperson number 1.
32. They don't set pricing correctly.
Another massive issue that many companies never get right, and that could easily account for another column on its own.
33. Their product doesn't live up to its billing.
Related to #16. Execution is usually much more important than hype.
34. Their digital presence is subpar.
As an example: How annoyed do we get by slow-loading websites? Annoyed enough to take our business elsewhere.
35. They ignore customer feedback.
Customers will always tell you what they think. Sometimes they're direct, other times less so. But if you listen, they will tell you what direction your company should go in.
36. They expand too quickly.
What constitutes too quickly? Fast enough that they wind up violating many of the other rules on this list, for starters.
37. They open themselves up to legal challenges.
We've already covered intellectual property--the short version is that business that spends its time fighting legal battles isn't spending that time on more productive things.
38. They pivot--in the wrong direction, or poorly.
Decisiveness is key, but it has to go hand in hand with good judgment.
39. They focus on short-term profits at the expense of long-term customer relationships.
There are some businesses that are only meant to exist in the short-term. For everyone else, this kind of thinking can lead to an early demise.
Which other common reasons or business failure did we miss? I'd love to read your thoughts in the comments below. (Don't forget, you can download the original, more robustly designed infographic here, for free.)