Why do good business ideas fail?

10 reasons why start-ups fail

Again and again you can read that start-ups fail in the first few years after they are founded. Unfortunately, this is a statistically verifiable fact. The causes for this are manifold. The insufficient financing of the business project is a weighty, but not the only reason why people who dare to take the step into an independent existence have to give up after a few months or years. Even if a founder has done everything right according to the textbook, residual risks remain in the form of unforeseeable events. The following aspects are most commonly responsible for failure.

 

  

Too little equity

Every business start-up needs liquid funds to make investments and to cover the really unavoidable costs in the first few months. And also the security of the livelihood must be given. However, many founders start with insufficient equity. This harbors the risk that the young company can quickly get into financial difficulties. Starting a business is almost impossible without equity. Equity capital and other collateral are also an indispensable prerequisite for obtaining borrowed funds.

 

  

Funding error

Just as the expected sales in the business plan are often screwed too high, many young entrepreneurs often calculate too tightly. If it turns out after a short time that approved borrowings are insufficient, it becomes difficult to expand existing credit lines without further contributions or collateral. Investors and credit institutions are always critical of looking-ups. The best way to prevent possible crises of confidence is to plan the credit lines and amounts beyond what is actually needed. That saves a lot of trouble in the worst-case scenario. It is not uncommon for business start-ups to fail because the bank literally turns off the "money tap".

 


 

  

Lack of commercial knowledge

No matter how good a business idea is, no matter how brilliant the technical implementation. If there is a lack of basic knowledge of business management, there is always the risk that business risks are incorrectly assessed or not recognized in time. Fixed costs often rise faster than sales allow. Coming off this again poses the first big problems for some young entrepreneurs. The young entrepreneur should therefore carefully calculate rents, leasing rates and other long-term payment obligations before signing contracts.

 

  

Deficiencies in the business plan

Business plans are often created in order to convince credit institutions of a business idea and to obtain the necessary financial resources. Risks are often ignored and expectations are set too high. It is important to be honest with yourself. If business doesn't go as hoped, business plans should be adjusted to reflect the realities. Better to plan conservatively than too euphorically! Even the founders who have sufficient funds of their own should definitely draw up a business plan. This is used for self-control as well as a realistic assessment of the medium and long-term capital requirements.

 


 

  

Market assessment of the business idea

Many inexperienced founders believe that one good idea is enough for the ruble to roll quickly. A mistake. A lot of preparatory work has to be done before a business model can really take effect. Without advertising - in whatever form - it doesn't work. Longer lead times must therefore be taken into account. They can last up to three years. Inadequate marketing is one of the second most common causes of failure in the first six years, because it is not uncommon for the demand for a product or service to be overestimated and the competition to be significantly underestimated. It is not for nothing that it is often said: "The competition never sleeps."

 

  

Family environment

A lot is demanded from start-ups. The absolute will to succeed is not enough. An above-average amount of work in the first months and years before a start-up really works is the rule. Many founders fail because they cannot reconcile their other obligations with the requirements of their business. It is best to involve your partner or family at an early stage and ensure their support. Temporary deprivations can then be better dealt with.

 


 

  

Overconfidence

Founders without entrepreneurial experience are often so intoxicated with their business idea that they literally live on credit. That is, spending too much in anticipation of future sales. If, contrary to expectations, the business does not develop as quickly and sales do not reach the level hoped for, financial difficulties can arise all of a sudden, which threaten the company's existence. It is essential to distinguish between expenses that serve investment purposes and those that tend to satisfy one's own ego. The order does not depend on whether the young entrepreneur drives up to the customer in a particularly fat company car.

 

  

Dispute among founders

If several founders join forces and are contractually bound in a GbR or GmbH, each co-founder should definitely have contracts checked for pitfalls by a lawyer he trusts. It is not uncommon for concessions to be made to other shareholders in the euphoric start-up phase, which later turn out to be a great burden and can no longer be corrected easily. Legal disputes between the founding shareholders are inevitable, which often heralds the beginning of the end of a company. You should also always keep in mind that individual goals can change over time. Early discussions help to identify possible differences in good time and avoid conflicts so as not to endanger the business model as a whole.

 


 

  

Lack of innovation potential

Even if a business model starts successfully and generates good profits after a few years, the wind can suddenly turn. In this case, it is important to build up reserves in good time so that financial drought can be bridged. In any case, it is always a risk to concentrate exclusively on one product or on a few customers. Firstly, there are very large dependencies and, secondly, existing customers - unless you trade in consumer products - cannot be tied in this way for the long term. If these customers suddenly break away, a large gap quickly arises that cannot be filled again in a timely manner. Diversification and innovation offer the best guarantee for the long-term development and safeguarding of the business model.

 

  

Other causes

Even if all the requirements for a successful business start-up are met and everything is right, from the business idea to the financing, unforeseeable events can occur that can endanger a company. Sudden changes in buying behavior or abrupt trends can always occur.

 


 

  

Conclusion

Just like life in general, every business start-up is fraught with risks. It is important to recognize possible dangers in good time and keep an eye on them. If the willingness to take risks is low or nonexistent, one should consider whether starting an independent business is really the right step. There are no one hundred percent recipes for success. And should you really fail, it is not the end of the world. Because every failure usually also harbors the chance of a new beginning. And as the saying goes: "If you don't dare, you won't win"!