Top 5 Reasons for Start-up Failure

The Founders Workbench team spends time talking to a lot of entrepreneurs who have plans to start their own business. Some of these are “career entrepreneurs” with experience that can involve several start-up ventures, while others are younger entrepreneurs who may not have any familiarity with what’s required to build a successful business.

Regardless of how far along they are in their career path, founders of start-up companies will benefit from avoiding the common pitfalls that most often doom new ventures. Avoiding these mistakes will allow founders to spend less time addressing legal and organizational obstacles and more time developing their products and their businesses. We identified five common missteps that cause start-ups to fail in hopes that founders will avoid them.

  1. Poor Planning – Many founders have the zeal of the believer – but not the basic foundation on which to build a company. A good first step starts with developing a business plan that includes strategy and projections for at least the first full year of the business.
  2. Bad structure – One of the early decisions start-ups must make is to choose a legal structure for incorporating the company. Whether founders elect to incorporate as a corporation or as an LLC will depend on careful analysis of both immediate goals and long-term needs. Use the right legal documents from a reliable source of information.
  3. Failure to protect – Many start-ups rely on innovations in technology or other areas, so protecting key intellectual property is critical. This requires understanding IP laws and common issues relating to IP, patents, trade secrets and trademarks.
  4. Lack of lingo – Founders of start-up companies must know how to talk to and interact with potential investors, notably venture capital and other sources of finance. Too often, entrepreneurs go into key meetings without brushing up on relevant jargon and end up hamstringing an otherwise sound presentation and business investment pitch. Know how to talk the talk.
  5. Confusion about financing – The financing options for funding a start-up effort are many, but founders don’t always take the time to completely understand what’s available and how they might apply. Crowdfunding has recently emerged as an attractive way to fund a business, for example, but may not align with every start-up’s goals. Founders should take the time to understand financing options before jumping in to a fundraising campaign.

 
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