Cash Flow and Other Top Reasons Startups Fail  

Cash flow is the biggest problem for startups — 38% fail because they can’t acquire new funding.

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If you look deeper, why startups fail to acquire funding is much more problematic and include:

No Market Need

Startups often get caught up in trying to solve problems that are interesting to them rather than those that serve a market need. In fact, 35% of businesses fail due to this reason.

A month after Paul Graham, Jessica Livingston, Trevor Blackwell, and Robert Morris started the Y Combinator seed accelerator in 2005, they picked “make something people want” as their motto.

It has become woefully obvious that failing to do this is one of the easiest ways to guarantee startup failure.

When mobile streaming service Quibi failed six months after launching and raising a fantastic $1.8 billion, its founders said, “The idea behind Quibi either wasn’t strong enough to justify a stand-alone streaming service or the service’s launch in the middle of a pandemic was particularly ill-timed.”

Getting Outcompeted

Not knowing what competitors are doing is why 20% of startups fail.
The unfortunate truth is that once an idea gains traction or gets market validation, others will try to capitalise on the opportunity.

After being unable to make it in the hyper-competitive consumer hardware industry, the founder of Reach Robotics, Silas Adekunle, said,

“The consumer robotics sector is an inherently challenging space — especially for a startup. Over the past six years, we have taken on this challenge with consistent passion and ingenuity. Unfortunately, for Reach Robotics, in its current form at least, today marks the end of that journey.”

Flawed Business Model

Startups need a well-planned business model that is resilient to market changes. Choosing to stay attached to one channel or failing to make money at scale represents about 19% of startup failure.

UK-based blockchain music startup JAAK faced scaling challenges, and as they focused on securing funding, they neglected their users. The company said, “Ultimately, we failed to secure the funding required to get to market. Markets change and we didn’t change quickly enough.”

Regulatory/Legal Challenges

 

Startups that don’t grasp the full extent of regulatory challenges they are subjected to fail to cope with the changes in the industry. About 18% of startups fail for this reason.

 

Coolest Cooler got caught in the middle of the U.S. and China “trade wars.” The company failed to deliver 20,000 of its products and ceased operations. It announced that “As you may know, late last year the U.S. government imposed 10% tariffs on many products imported from China… However, as of early summer, the “trade war” continued, and the tariff was increased to 25% which affected our entire Coolest product line.”

 

These are all obstacles that entrepreneurs need to sort through before they appear in front of investors — to maximise their chances of receiving funding.

 

Impressive fundraising skill is only one way to surpass investment expectations. Startup founders need to develop an air-tight plan for creating an investable project.

 

Getting prospects excited to try your product and investors eager to fund are outcomes of a much larger process that stems from a fantastic idea and includes product positioning, go-to-market strategy, pitch deck and, yes, fundraising skills.

Learn about funding and all that it entails from the university responsible for spinning out 140+ startups and raising £1.9+ billion in equity investment across 400+ rounds. Join the Cambridge Startup Funding: Pre-Seed to Exit programme today and give your startup the best chance of success.

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