In the last few years, many tech startups have been founded. Some have even become so-called 'unicorns', privately owned tech companies valued at over $1 billion. It's the dream of every founder of a tech startup... But while we tend to read a lot about the startups that have become big success stories, there aren't always a lot of stories about the startups that fail. Because, unfortunately, that's also often the case! To be honest... most startups fail, actually. According to data, about 90% of all startups fail. 10% in the first year, and around 70% in years two through five. That's why it's super important to have a good business plan before starting, and to be on top of your funding.
But anyway: some startups do make it! And in this article, we tell you everything about how to make sure yours doesn't fail.
Reason: running out of cash
Startups are known to have liquidity problems. Often, they try to get their name out by being very aggressive with advertisements and promotions. Because of this technique, they spend a lot of money on online and offline advertising and often, they don't even break even. According to research, in the first few years, only two out of five startups are profitable. Most are trying to secure funding from external investors so they can keep their liquidity good enough to continue their operations.
Make sure you have a great business plan that focuses on both securing funding and trying to keep the overspending in check. If you don't have any experience with money management, be sure to hire someone who does. Get an accountant to stay on top of your finances and alarm you when you're spending too much or when debtors aren't paying their bills. A debt collection agency (Dutch: incassobureau) can hire a bailiff (Dutch: deurwaarder inschakelen) to seize their assets, so you receive your hard-earned money.
Reason: market problems
Just because you think you've found the golden egg, doesn't mean the market agrees. Many startups find out that their incredible idea isn't all that well liked in the market. True - there are startups that have literally 'created' markets for their products and services, but it's hard. That's why we always recommend intensive market research to see whether your product or service is interesting to one or more groups of people. While your tech friends and/or parents might be super enthusiastic about your idea, that doesn't mean the general public will be, unfortunately.
Reason: a bad management team
Like mentioned above: most companies don't fail in their first year of business, but they fail later. One of the reasons that can happen, is because the management team isn't equipped to manage a company. Often, the management team are the first employees of a startup. Or the founder's friends. And while people can learn a lot while being on the job, they can't know everything... That's why it's important to also hire skilled people to join your management team. Something that we also often see, is that CEO's/founders step aside for CEO's with years of experience building other brands. The founder then stays on as an advisor that has a say in things, but doesn't have to take the big decisions anymore.
Good luck with your tech startup!
