Knowing the biggest risks—the most common causes of new startup failures—can make the difference between your business sinking or swimming.
Bad luck, bad timing, a half-baked business model, etc., can make a startup fail. And about 20% of new businesses fail within their first year, according to data from the U.S. Bureau of Labor Statistics.
Luckily, some new research can shed light on the biggest obstacles holding back startups in recent times.
Skynova, which makes invoicing software for small businesses, surveyed 492 startup founders in November 2022 to CB for a new study looking at the most common reasons behind startup failures in 2022. Analyzed startup data from Insights.
- Lack of funds and investors. The study notes that 47% of startup failures in 2022 will be due to lack of funding, almost double the rate of failures for the same reason in 2021, based on data from CB Insights. increase.
- 44% of failures were due to lack of cash. This could be the result of poor financial planning, but it could also indicate a lack of available funds.
A recent Crunchbase report found the capital problem not surprising given that North American startup investment fell 63% year-over-year in 2022 due to factors such as potential recession fears. is not.
Those looking to start new businesses in 2023 may face similar obstacles to securing funding as long as economic uncertainty persists.
- Effects of the ongoing Covid-19 pandemic. 33% of startup failures were attributed to the pandemic’s widespread impact on businesses and the economy at large, but CB Insight data shows that number is down from his 59% the year before. . This shows that many small businesses have recovered from the worst of the pandemic. In 2022, some continued to struggle to get back to normal.
Startup success advice from the founder
No entrepreneur can guarantee success, but the founders Skynova surveyed had a lot of advice they could offer to anyone looking to take the leap and launch their own business.
When asked what they wished they had done differently when starting their own business, 58% of founders surveyed said they wished they had done more market research before launching. The same percentage said they wished they had put together a stronger business plan.
This is consistent with advice on the US Small Business Administration website. According to its website, a solid business plan is central to startup success and can act “like a GPS for how to build, operate and grow a new business.”
Also very important is the ability to think on your feet and make the necessary changes if your plan doesn’t work out. When asked for his best advice to aspiring founders, 79% of those surveyed by Skynova told promising entrepreneurs to “learn from their mistakes.”
They seem to be speaking from experience, as 40% of founders surveyed say they’ve pivoted their startup in some way to avoid failure before. And 75% of them said the reorientation led to success.
The most common types of shifts noted by founders were business plan changes and new product launches or improvements to existing products.
Recognizing that your startup is on the road to failure and making a successful pivot to avoid disaster is a skill any successful entrepreneur can use. In fact, according to CB Insights, pivot failure is he one of the most common reasons startups fail.
“Shark Tank” investor Kevin O’Leary previously told CNBC Make It that his own loss-making investments often have similar things in common. . If necessary. In many cases, these founders refuse to acknowledge that they need to update their original business plans in order to survive.
“They can’t get out of their way,” said O’Leary. “They don’t listen to anyone else.”
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