Why Startups Fail, and How to Prevent It

The statistics are not reassuring: fully nine out of every ten new startups close up shop by their third year of operations. And those that survive those first three years often continue to struggle with sales, personnel, inventory, and financial problems that can turn their dream enterprise into something akin to a nightmare. Don’t let that happen to your business startup. It takes hard work and dedication to produce a successful startup, one that both makes money and gives you satisfaction, but as scores of entrepreneurs can testify it can be done, provided you follow some of the basic startup rules that successful enterprises have learned the hard way.

Controlled growth

Controlling the growth of your startup is essential, and needs to be a priority from day one. Take the example of a fruit tree:  the tender new sapling is planted in the ground and nurtured along for a period of time as it grows stronger and taller. Along the way some pruning will take place, to keep it from becoming top heavy and to let in the sunlight. Finally, after patient waiting, buds become flowers and then flowers become green fruit and finally the apple or pear or peach is ready to harvest. This process did not occur overnight, and the wise fruit farmer doesn’t try to force his trees into producing before they’re ready. He or she knows that will only lead to less productivity and unacceptable losses in the whole orchard. And that’s the way it is with startups.

The smart entrepreneur plants his idea, nourishes it with seed money from investors, lets it grow naturally with help from marketing and sales experts, and when steady customers begin to purchase the product on a regular basis, when contracts are signed guaranteeing a certain amount of purchases, then, and only then, should the entrepreneur begin serious plans for expansion. And along the way there is bound to be some pruning of personnel, as the staff is weighed and tested to make sure they share your same vision and goals. There might be some ‘drought’ as well, when finances start to dry up unexpectedly. To weather that kind of thing, it’s best to be small and stay small until the crisis is over. MBAs call this kind of business philosophy ‘scaling.’ You have to take your time to bring your startup up to the kind of scale you dream of. Of course the news is full of stories about business startups that go from garage to billion dollar enterprise in a matter of months — but that is like stories about winning the Lottery; it only happens to one in twenty million.

More about pruning

According to lending experts at LoanStar, “The art of pruning is something good entrepreneurs learn early on and continue to practice throughout their active business life.” Once a startup has taken off and begins to prosper it seems natural to start adding more formal process to management, and to even add more and more layers of management — as a sign that business is thriving and becoming more complicated. It’s often said that the more layers of management there are the less clearly the top managers can see what the company is really doing, or where it is headed. But that it’s a necessary part of healthy business growth. But a good pruner, or, in other words, a wise scaler, will consider just how top heavy his or her startup is becoming, and prune appropriately. Once a process is in place it has a tendency to reproduce itself and create redundancy in an attempt to show how important it is. Just look at the federal government, with its bloated staff of clerks and bureaucrats who either step all over each other trying to get something done, or simply sit back and do nothing — thinking that someone else is already in place to do their job. A startup owner should always be ready to cut back on bloat, to automate where manual procedures are inefficient, and to be willing to outsource low priority and non-essential procedures.

Employees need to be challenged

A startup full of clock watchers and time wasters is headed for failure. Even one employee who is there just for the paycheck and never goes the extra mile or tries to be positive can bring down a whole department with their negative don’t-give-a-darn attitude. Such bad apples need to be sent packing as soon as possible. They are like an infectious disease that can spread quickly through an entire startup.

Once that is taken care of, it is time to start pushing employees. Not bullying them or threatening them, but challenging them to meet predetermined goals and increase their vision and appreciation of what their company is all about.

While not every staff member is going to be a self-starter, every staff member can be professionally pushed to do their best and give the company everything they have to make sure it not only remains profitable but continues to grow more so. Many startups now offer stock options to new employees to help them stay focused on keeping the company viable and trending. But whatever you decide to do to motivate your employees to work smarter and become more productive, make sure it’s something you believe in yourself. Offer bonuses or prizes, but only if that’s something you would respond to if you were in their shoes.

Share your dreams

America is based on the dreams and sacrifices of a group of men and women we often call our Founding Fathers or Founding Mothers. To really appreciate how great our country was and is, it’s needful from time to time to study their lives and their history, to remind ourselves of what this country stands for and how it was created. The same holds true for every successful startup. Start recording the history of your startup from day one, and never stop adding to it. And then, once the real growth begins, make sure to take time to share this history, this dream, with every employee, whether it be at a company picnic, in a newsletter, or during a one-on-one interview, or just a casual hallway conversation. People tend to forget how wonderful dreams can be, and get stuck in their own ruts. So a successful startup owner is going to not only make some history, but share it with his or her staff to help inspire them to keep up the good work.

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